Dataset info
| Number of variables | 47 |
|---|---|
| Number of observations | 3330 |
| Missing cells | 15029 (9.6%) |
| Duplicate rows | 0 (0.0%) |
| Total size in memory | 1.1 MiB |
| Average record size in memory | 341.0 B |
Variables types
| Numeric | 27 |
|---|---|
| Categorical | 7 |
| Boolean | 6 |
| Date | 0 |
| URL | 0 |
| Text (Unique) | 1 |
| Rejected | 6 |
| Unsupported | 0 |
Warnings
age has 92 (2.8%) zeros | Zeros |
age has 182 (5.5%) missing values | Missing |
blueSky has 1328 (39.9%) missing values | Missing |
bookValue has 418 (12.6%) missing values | Missing |
city has a high cardinality: 948 distinct values | Warning |
closeDay1 has 115 (3.5%) missing values | Missing |
commonEquity is highly skewed (γ1 = -41.06869092) | Skewed |
commonEquity has 679 (20.4%) missing values | Missing |
commonEquity.1 has 505 (15.2%) missing values | Missing |
investmentReceived is highly skewed (γ1 = 36.1068583) | Skewed |
investmentReceived has 1500 (45.0%) missing values | Missing |
ipoSize is highly correlated with amountOnProspectus (ρ = 0.9926927282) | Rejected |
leverage has 633 (19.0%) zeros | Zeros |
leverage has 376 (11.3%) missing values | Missing |
managementFee is highly correlated with ipoSize (ρ = 0.9167136414) | Rejected |
manager has a high cardinality: 1487 distinct values | Warning |
nasdaq2weeksBefore is highly correlated with dj2weeksBefore (ρ = 0.9299237865) | Rejected |
netIncome has 392 (11.8%) missing values | Missing |
nExecutives has 1429 (42.9%) missing values | Missing |
nPatents is highly skewed (γ1 = 29.0217917) | Skewed |
nPatents has 2491 (74.8%) zeros | Zeros |
nVCs has 1329 (39.9%) missing values | Missing |
patRatio has 266 (8.0%) zeros | Zeros |
patRatio has 1287 (38.6%) missing values | Missing |
priorFinancing has 113 (3.4%) zeros | Zeros |
priorFinancing has 1417 (42.6%) missing values | Missing |
reputationAvg has 44 (1.3%) zeros | Zeros |
reputationLeadAvg has 230 (6.9%) zeros | Zeros |
reputationLeadMax has 230 (6.9%) zeros | Zeros |
reputationSum is highly correlated with nUnderwriters (ρ = 0.9577851468) | Rejected |
rf has a high cardinality: 3058 distinct values | Warning |
rf has 273 (8.2%) missing values | Missing |
roa has 392 (11.8%) missing values | Missing |
sharesOfferedPerc has 262 (7.9%) missing values | Missing |
sp2weeksBefore is highly correlated with nasdaq2weeksBefore (ρ = 0.964605601) | Rejected |
totalAssets has 357 (10.7%) missing values | Missing |
totalProceeds is highly correlated with ipoSize (ρ = 0.9951531237) | Rejected |
totalRevenue is highly skewed (γ1 = 29.07194647) | Skewed |
totalRevenue has 176 (5.3%) zeros | Zeros |
totalRevenue has 375 (11.3%) missing values | Missing |
age
Numeric
| Distinct count | 134 |
|---|---|
| Unique (%) | 4.0% |
| Missing (%) | 5.5% |
| Missing (n) | 182 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 16.18456163 |
|---|---|
| Minimum | 0 |
| Maximum | 175 |
| Zeros (%) | 2.8% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 1 |
| Q1 | 4 |
| Median | 8 |
| Q3 | 17 |
| 95-th percentile | 67.65 |
| Maximum | 175 |
| Range | 175 |
| Interquartile range | 13 |
Descriptive statistics
| Standard deviation | 22.56715973 |
|---|---|
| Coef of variation | 1.39436336 |
| Kurtosis | 10.12220304 |
| Mean | 16.18456163 |
| MAD | 14.18712532 |
| Skewness | 2.968657105 |
| Sum | 50949 |
| Variance | 509.2766983 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 3 | 220 | 6.6% | |
| 4 | 217 | 6.5% | |
| 7 | 197 | 5.9% | |
| 5 | 191 | 5.7% | |
| 6 | 186 | 5.6% | |
| 2 | 183 | 5.5% | |
| 8 | 175 | 5.3% | |
| 1 | 152 | 4.6% | |
| 9 | 134 | 4.0% | |
| 10 | 119 | 3.6% | |
| Other values (123) | 1374 | 41.3% | |
| (Missing) | 182 | 5.5% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 92 | 2.8% | |
| 1 | 152 | 4.6% | |
| 2 | 183 | 5.5% | |
| 3 | 220 | 6.6% | |
| 4 | 217 | 6.5% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 175 | 1 | < 0.1% | |
| 165 | 1 | < 0.1% | |
| 159 | 1 | < 0.1% | |
| 158 | 1 | < 0.1% | |
| 157 | 1 | < 0.1% |
amountOnProspectus
Numeric
| Distinct count | 1413 |
|---|---|
| Unique (%) | 42.4% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 178.2675375 |
|---|---|
| Minimum | 1.4 |
| Maximum | 16006.9 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1.4 |
|---|---|
| 5-th percentile | 15.1 |
| Q1 | 43.2 |
| Median | 80 |
| Q3 | 160 |
| 95-th percentile | 600 |
| Maximum | 16006.9 |
| Range | 16005.5 |
| Interquartile range | 116.8 |
Descriptive statistics
| Standard deviation | 508.2252318 |
|---|---|
| Coef of variation | 2.850912952 |
| Kurtosis | 558.7865097 |
| Mean | 178.2675375 |
| MAD | 169.3414611 |
| Skewness | 19.61089764 |
| Sum | 593630.9 |
| Variance | 258292.8862 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[1.40000e+00 5.45000e+00 1.49500e+01 1.50500e+01 1.99000e+01 ... 7.28250e+02 9.70500e+02 1.91995e+03 4.14425e+03 1.60069e+04], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 75 | 44 | 1.3% | |
| 60 | 42 | 1.3% | |
| 90 | 30 | 0.9% | |
| 40 | 29 | 0.9% | |
| 48 | 28 | 0.8% | |
| 72 | 27 | 0.8% | |
| 45 | 27 | 0.8% | |
| 56 | 27 | 0.8% | |
| 50 | 25 | 0.8% | |
| 35 | 24 | 0.7% | |
| Other values (1403) | 3027 | 90.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1.4 | 1 | < 0.1% | |
| 1.7 | 1 | < 0.1% | |
| 3 | 1 | < 0.1% | |
| 3.3 | 1 | < 0.1% | |
| 3.5 | 2 | 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 16006.9 | 1 | < 0.1% | |
| 15774 | 1 | < 0.1% | |
| 5470 | 1 | < 0.1% | |
| 4403.5 | 1 | < 0.1% | |
| 3885 | 1 | < 0.1% |
blueSky
Numeric
| Distinct count | 75 |
|---|---|
| Unique (%) | 2.3% |
| Missing (%) | 39.9% |
| Missing (n) | 1328 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 12916.11588 |
|---|---|
| Minimum | 500 |
| Maximum | 450000 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 500 |
|---|---|
| 5-th percentile | 2500 |
| Q1 | 5000 |
| Median | 10000 |
| Q3 | 15000 |
| 95-th percentile | 30000 |
| Maximum | 450000 |
| Range | 449500 |
| Interquartile range | 10000 |
Descriptive statistics
| Standard deviation | 18172.97985 |
|---|---|
| Coef of variation | 1.407000372 |
| Kurtosis | 344.3270521 |
| Mean | 12916.11588 |
| MAD | 7785.676912 |
| Skewness | 15.37073646 |
| Sum | 25858064 |
| Variance | 330257196.7 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 10000 | 540 | 16.2% | |
| 5000 | 492 | 14.8% | |
| 15000 | 289 | 8.7% | |
| 20000 | 126 | 3.8% | |
| 25000 | 94 | 2.8% | |
| 7500 | 79 | 2.4% | |
| 30000 | 45 | 1.4% | |
| 3000 | 38 | 1.1% | |
| 2500 | 37 | 1.1% | |
| 1000 | 33 | 1.0% | |
| Other values (64) | 229 | 6.9% | |
| (Missing) | 1328 | 39.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 500 | 3 | 0.1% | |
| 600 | 1 | < 0.1% | |
| 1000 | 33 | 1.0% | |
| 1500 | 7 | 0.2% | |
| 2000 | 28 | 0.8% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 450000 | 2 | 0.1% | |
| 225000 | 1 | < 0.1% | |
| 130000 | 1 | < 0.1% | |
| 100000 | 2 | 0.1% | |
| 85000 | 2 | 0.1% |
bookValue
Numeric
| Distinct count | 2906 |
|---|---|
| Unique (%) | 87.3% |
| Missing (%) | 12.6% |
| Missing (n) | 418 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 283.4410952 |
|---|---|
| Minimum | -8258.009719 |
| Maximum | 24277.0171 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -8258.009719 |
|---|---|
| 5-th percentile | -17.77385478 |
| Q1 | 34.59567015 |
| Median | 86.0785325 |
| Q3 | 198.504079 |
| 95-th percentile | 1077.047681 |
| Maximum | 24277.0171 |
| Range | 32535.02682 |
| Interquartile range | 163.9084089 |
Descriptive statistics
| Standard deviation | 1113.94607 |
|---|---|
| Coef of variation | 3.930079614 |
| Kurtosis | 187.5373949 |
| Mean | 283.4410952 |
| MAD | 355.7282402 |
| Skewness | 11.63639104 |
| Sum | 825380.4692 |
| Variance | 1240875.847 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 3931.997152 | 4 | 0.1% | |
| 5.712912 | 2 | 0.1% | |
| 149.1215551 | 2 | 0.1% | |
| 5.6281 | 2 | 0.1% | |
| 6.9195302 | 2 | 0.1% | |
| 1039.989813 | 1 | < 0.1% | |
| -75.0548397 | 1 | < 0.1% | |
| 279.9302646 | 1 | < 0.1% | |
| 80.173881 | 1 | < 0.1% | |
| -10.045071 | 1 | < 0.1% | |
| Other values (2895) | 2895 | 86.9% | |
| (Missing) | 418 | 12.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -8258.009719 | 1 | < 0.1% | |
| -4480.0044 | 1 | < 0.1% | |
| -1591.001525 | 1 | < 0.1% | |
| -1076.762882 | 1 | < 0.1% | |
| -1029.855908 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 24277.0171 | 1 | < 0.1% | |
| 20453.00848 | 1 | < 0.1% | |
| 19267.99367 | 1 | < 0.1% | |
| 16388.96976 | 1 | < 0.1% | |
| 13866.02123 | 1 | < 0.1% |
city
Categorical
| Distinct count | 948 |
|---|---|
| Unique (%) | 28.5% |
| Missing (%) | < 0.1% |
| Missing (n) | 1 |
| NEW YORK | 195 |
|---|---|
| HOUSTON | 98 |
| SAN DIEGO | 87 |
| Other values (944) |
| Value | Count | Frequency (%) | |
| NEW YORK | 195 | 5.9% | |
| HOUSTON | 98 | 2.9% | |
| SAN DIEGO | 87 | 2.6% | |
| CAMBRIDGE | 78 | 2.3% | |
| SAN FRANCISCO | 71 | 2.1% | |
| DALLAS | 57 | 1.7% | |
| SUNNYVALE | 53 | 1.6% | |
| CHICAGO | 48 | 1.4% | |
| SAN JOSE | 47 | 1.4% | |
| SANTA CLARA | 42 | 1.3% | |
| Other values (937) | 2553 | 76.7% |
| Max length | 30 |
|---|---|
| Mean length | 9.136036036 |
| Min length | 3 |
| Contains chars | True |
| Contains digits | True |
| Contains spaces | True |
| Contains non-words | True |
closeDay1
Numeric
| Distinct count | 1437 |
|---|---|
| Unique (%) | 43.2% |
| Missing (%) | 3.5% |
| Missing (n) | 115 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 18.84196146 |
|---|---|
| Minimum | -17.125 |
| Maximum | 280 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -17.125 |
|---|---|
| 5-th percentile | 7 |
| Q1 | 11.34375 |
| Median | 15.5625 |
| Q3 | 21.75 |
| 95-th percentile | 40.01875 |
| Maximum | 280 |
| Range | 297.125 |
| Interquartile range | 10.40625 |
Descriptive statistics
| Standard deviation | 15.02031499 |
|---|---|
| Coef of variation | 0.7971736395 |
| Kurtosis | 69.18363178 |
| Mean | 18.84196146 |
| MAD | 8.333906389 |
| Skewness | 6.184502865 |
| Sum | 60576.90608 |
| Variance | 225.6098624 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 13 | 38 | 1.1% | |
| 15 | 37 | 1.1% | |
| 20 | 34 | 1.0% | |
| 12 | 33 | 1.0% | |
| 14 | 30 | 0.9% | |
| 10 | 28 | 0.8% | |
| 8 | 27 | 0.8% | |
| 9 | 27 | 0.8% | |
| 11 | 27 | 0.8% | |
| 16 | 26 | 0.8% | |
| Other values (1426) | 2908 | 87.3% | |
| (Missing) | 115 | 3.5% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -17.125 | 1 | < 0.1% | |
| 3.875 | 1 | < 0.1% | |
| 3.98 | 2 | 0.1% | |
| 4 | 2 | 0.1% | |
| 4.01 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 280 | 1 | < 0.1% | |
| 239.25 | 1 | < 0.1% | |
| 212.625 | 1 | < 0.1% | |
| 184.75 | 1 | < 0.1% | |
| 172 | 1 | < 0.1% |
commonEquity
Numeric
| Distinct count | 1740 |
|---|---|
| Unique (%) | 52.3% |
| Missing (%) | 20.4% |
| Missing (n) | 679 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | -0.8645650698 |
|---|---|
| Minimum | -372.24 |
| Maximum | 8.892 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -372.24 |
|---|---|
| 5-th percentile | -4.225 |
| Q1 | -0.9375 |
| Median | 0.062 |
| Q3 | 0.4245 |
| 95-th percentile | 0.869 |
| Maximum | 8.892 |
| Range | 381.132 |
| Interquartile range | 1.362 |
Descriptive statistics
| Standard deviation | 7.813684084 |
|---|---|
| Coef of variation | -9.037705035 |
| Kurtosis | 1930.051669 |
| Mean | -0.8645650698 |
| MAD | 1.597567723 |
| Skewness | -41.06869092 |
| Sum | -2291.962 |
| Variance | 61.05365897 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0.061 | 11 | 0.3% | |
| 0.078 | 8 | 0.2% | |
| 0.098 | 7 | 0.2% | |
| 0.115 | 6 | 0.2% | |
| 0.174 | 6 | 0.2% | |
| 0.076 | 6 | 0.2% | |
| 0.177 | 6 | 0.2% | |
| 0.102 | 6 | 0.2% | |
| 0.153 | 6 | 0.2% | |
| 0.646 | 5 | 0.2% | |
| Other values (1729) | 2584 | 77.6% | |
| (Missing) | 679 | 20.4% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -372.24 | 1 | < 0.1% | |
| -61.086 | 1 | < 0.1% | |
| -54.46 | 1 | < 0.1% | |
| -44.52 | 1 | < 0.1% | |
| -31.386 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 8.892 | 1 | < 0.1% | |
| 5.651 | 1 | < 0.1% | |
| 3.702 | 1 | < 0.1% | |
| 1.663 | 1 | < 0.1% | |
| 1.204 | 1 | < 0.1% |
commonEquity.1
Numeric
| Distinct count | 1743 |
|---|---|
| Unique (%) | 52.3% |
| Missing (%) | 15.2% |
| Missing (n) | 505 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 78.56334513 |
|---|---|
| Minimum | 0.37 |
| Maximum | 374.75 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 0.37 |
|---|---|
| 5-th percentile | 21.552 |
| Q1 | 61.49 |
| Median | 92.84 |
| Q3 | 99.82 |
| 95-th percentile | 100 |
| Maximum | 374.75 |
| Range | 374.38 |
| Interquartile range | 38.33 |
Descriptive statistics
| Standard deviation | 27.53337347 |
|---|---|
| Coef of variation | 0.3504608087 |
| Kurtosis | 4.572609728 |
| Mean | 78.56334513 |
| MAD | 22.63322617 |
| Skewness | -0.6040774515 |
| Sum | 221941.45 |
| Variance | 758.0866547 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 100 | 652 | 19.6% | |
| 99.91 | 7 | 0.2% | |
| 97.62 | 6 | 0.2% | |
| 98.02 | 6 | 0.2% | |
| 99.66 | 6 | 0.2% | |
| 99.87 | 6 | 0.2% | |
| 98.38 | 5 | 0.2% | |
| 97.88 | 5 | 0.2% | |
| 96.77 | 5 | 0.2% | |
| 99.92 | 5 | 0.2% | |
| Other values (1732) | 2122 | 63.7% | |
| (Missing) | 505 | 15.2% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0.37 | 1 | < 0.1% | |
| 0.52 | 1 | < 0.1% | |
| 1 | 1 | < 0.1% | |
| 1.35 | 1 | < 0.1% | |
| 1.51 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 374.75 | 1 | < 0.1% | |
| 175.49 | 1 | < 0.1% | |
| 130.68 | 1 | < 0.1% | |
| 101.01 | 1 | < 0.1% | |
| 100.85 | 1 | < 0.1% |
dj2weeksBefore
Numeric
| Distinct count | 1842 |
|---|---|
| Unique (%) | 55.3% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 12046.48373 |
|---|---|
| Minimum | 5032.94 |
| Maximum | 26828.39 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 5032.94 |
|---|---|
| 5-th percentile | 6593.235 |
| Q1 | 9323.15 |
| Median | 10711.385 |
| Q3 | 13577.3 |
| 95-th percentile | 22371.3135 |
| Maximum | 26828.39 |
| Range | 21795.45 |
| Interquartile range | 4254.15 |
Descriptive statistics
| Standard deviation | 4466.449885 |
|---|---|
| Coef of variation | 0.370767934 |
| Kurtosis | 1.470803936 |
| Mean | 12046.48373 |
| MAD | 3370.453536 |
| Skewness | 1.302349067 |
| Sum | 40114790.83 |
| Variance | 19949174.58 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 5032.94 5478.94 5868.295 5879.765 6071.49 ... 24129.325 25397.915 25973.025 26008.365 26828.39 ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 10516.48 | 9 | 0.3% | |
| 11008.17 | 8 | 0.2% | |
| 5877.36 | 8 | 0.2% | |
| 10696.08 | 8 | 0.2% | |
| 9314.28 | 7 | 0.2% | |
| 7683.24 | 7 | 0.2% | |
| 25146.39 | 7 | 0.2% | |
| 17827.75 | 7 | 0.2% | |
| 5921.67 | 7 | 0.2% | |
| 10788.7 | 7 | 0.2% | |
| Other values (1832) | 3255 | 97.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 5032.94 | 1 | < 0.1% | |
| 5130.13 | 2 | 0.1% | |
| 5192.27 | 1 | < 0.1% | |
| 5304.98 | 1 | < 0.1% | |
| 5459.61 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 26828.39 | 2 | 0.1% | |
| 26627.48 | 2 | 0.1% | |
| 26616.71 | 1 | < 0.1% | |
| 26439.93 | 2 | 0.1% | |
| 26405.76 | 2 | 0.1% |
egc
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| False | |
|---|---|
| True |
| Value | Count | Frequency (%) | |
| False | 2586 | 77.7% | |
| True | 744 | 22.3% |
exchange
Categorical
| Distinct count | 3 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| NASDQ | |
|---|---|
| NYSE | |
| AMEX | 67 |
| Value | Count | Frequency (%) | |
| NASDQ | 2368 | 71.1% | |
| NYSE | 895 | 26.9% | |
| AMEX | 67 | 2.0% |
| Max length | 5 |
|---|---|
| Mean length | 4.711111111 |
| Min length | 4 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | False |
| Contains non-words | False |
highTech
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| True | |
|---|---|
| False |
| Value | Count | Frequency (%) | |
| True | 1805 | 54.2% | |
| False | 1525 | 45.8% |
html
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| True | |
|---|---|
| False |
| Value | Count | Frequency (%) | |
| True | 1957 | 58.8% | |
| False | 1373 | 41.2% |
industryFF12
Categorical
| Distinct count | 12 |
|---|---|
| Unique (%) | 0.4% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Business Equipment -- Computers, Software, and Electronic Equipment | |
|---|---|
| Healthcare, Medical Equipment, and Drugs | |
| Finance | |
| Other values (9) |
| Value | Count | Frequency (%) | |
| Business Equipment -- Computers, Software, and Electronic Equipment | 945 | 28.4% | |
| Healthcare, Medical Equipment, and Drugs | 621 | 18.6% | |
| Finance | 483 | 14.5% | |
| Other | 462 | 13.9% | |
| Wholesale, Retail, and Some Services (Laundries, Repair Shops) | 271 | 8.1% | |
| Manufacturing -- Machinery, Trucks, Planes, Off Furn, Paper, Com Printing | 142 | 4.3% | |
| Telephone and Television Transmission | 130 | 3.9% | |
| Oil, Gas, and Coal Extraction and Products | 89 | 2.7% | |
| Consumer NonDurables -- Food, Tobacco, Textiles, Apparel, Leather, Toys | 83 | 2.5% | |
| Consumer Durables -- Cars, TV's, Furniture, Household Appliances | 39 | 1.2% | |
| Other values (2) | 65 | 2.0% |
| Max length | 73 |
|---|---|
| Mean length | 41.83663664 |
| Min length | 5 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | True |
| Contains non-words | True |
industryFF48
Categorical
| Distinct count | 48 |
|---|---|
| Unique (%) | 1.4% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Business Services | |
|---|---|
| Pharmaceutical Products | |
| Trading | 221 |
| Other values (45) |
| Value | Count | Frequency (%) | |
| Business Services | 845 | 25.4% | |
| Pharmaceutical Products | 409 | 12.3% | |
| Trading | 221 | 6.6% | |
| Electronic Equipment | 190 | 5.7% | |
| Retail | 158 | 4.7% | |
| Banking | 145 | 4.4% | |
| Medical Equipment | 138 | 4.1% | |
| Communication | 130 | 3.9% | |
| Computers | 108 | 3.2% | |
| Petroleum and Natural Gas | 84 | 2.5% | |
| Other values (38) | 902 | 27.1% |
| Max length | 40 |
|---|---|
| Mean length | 15.38048048 |
| Min length | 4 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | True |
| Contains non-words | True |
industryFF5
Categorical
| Distinct count | 5 |
|---|---|
| Unique (%) | 0.2% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Business Equipment, Telephone and Television Transmission | |
|---|---|
| Other | |
| Healthcare, Medical Equipment, and Drugs | |
| Other values (2) |
| Value | Count | Frequency (%) | |
| Business Equipment, Telephone and Television Transmission | 1122 | 33.7% | |
| Other | 898 | 27.0% | |
| Healthcare, Medical Equipment, and Drugs | 621 | 18.6% | |
| Consumer Durables, NonDurables, Wholesale, Retail, and Some Services (Laundries, Repair Shops) | 393 | 11.8% | |
| Manufacturing, Energy, and Utilities | 296 | 8.9% |
| Max length | 94 |
|---|---|
| Mean length | 42.30690691 |
| Min length | 5 |
| Contains chars | True |
| Contains digits | False |
| Contains spaces | True |
| Contains non-words | True |
investmentReceived
Numeric
| Distinct count | 1725 |
|---|---|
| Unique (%) | 51.8% |
| Missing (%) | 45.0% |
| Missing (n) | 1500 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 171295.1371 |
|---|---|
| Minimum | -14574.7 |
| Maximum | 37605000 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | -14574.7 |
|---|---|
| 5-th percentile | 5499.9 |
| Q1 | 31198 |
| Median | 70982.05 |
| Q3 | 146996 |
| 95-th percentile | 540129.845 |
| Maximum | 37605000 |
| Range | 37619574.7 |
| Interquartile range | 115798 |
Descriptive statistics
| Standard deviation | 928568.3849 |
|---|---|
| Coef of variation | 5.420868336 |
| Kurtosis | 1446.623104 |
| Mean | 171295.1371 |
| MAD | 173809.6285 |
| Skewness | 36.1068583 |
| Sum | 313470100.9 |
| Variance | 8.622392454e+11 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 10000 | 8 | 0.2% | |
| 15000 | 6 | 0.2% | |
| 50000 | 6 | 0.2% | |
| 25000 | 6 | 0.2% | |
| 20000 | 6 | 0.2% | |
| 40000 | 5 | 0.2% | |
| 4000 | 4 | 0.1% | |
| 150000 | 4 | 0.1% | |
| 3000 | 3 | 0.1% | |
| 3500 | 3 | 0.1% | |
| Other values (1714) | 1779 | 53.4% | |
| (Missing) | 1500 | 45.0% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -14574.7 | 1 | < 0.1% | |
| 50 | 1 | < 0.1% | |
| 100 | 1 | < 0.1% | |
| 140 | 1 | < 0.1% | |
| 150 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 37605000 | 1 | < 0.1% | |
| 4654274.1 | 1 | < 0.1% | |
| 4005520 | 1 | < 0.1% | |
| 3882175 | 1 | < 0.1% | |
| 3019984 | 1 | < 0.1% |
ipoSize
Highly correlated
This variable is highly correlated with amountOnProspectus and should be ignored for analysis
| Correlation | 0.9926927282 |
|---|
issuer
Categorical, Unique
| First 5 values |
|---|
| 012 Smile.Communications Ltd |
| 1-800 Contacts Inc |
| 1-800-Flowers.com Inc |
| 1347 Property Insurance Hldgs |
| 21st Century Holding Co |
| Last 5 values |
|---|
| uBID Inc |
| uniQure BV |
| vTv Therapeutics Inc |
| webMethods Inc |
| zulily inc |
First 5 values
| Value | Count | Frequency (%) | |
| 012 Smile.Communications Ltd | 1 | < 0.1% | |
| 1-800 Contacts Inc | 1 | < 0.1% | |
| 1-800-Flowers.com Inc | 1 | < 0.1% | |
| 1347 Property Insurance Hldgs | 1 | < 0.1% | |
| 21st Century Holding Co | 1 | < 0.1% |
Last 5 values
| Value | Count | Frequency (%) | |
| zulily inc | 1 | < 0.1% | |
| webMethods Inc | 1 | < 0.1% | |
| vTv Therapeutics Inc | 1 | < 0.1% | |
| uniQure BV | 1 | < 0.1% | |
| uBID Inc | 1 | < 0.1% |
leverage
Numeric
| Distinct count | 2318 |
|---|---|
| Unique (%) | 69.6% |
| Missing (%) | 11.3% |
| Missing (n) | 376 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 0.195876729 |
|---|---|
| Minimum | 0 |
| Maximum | 3.18867121 |
| Zeros (%) | 19.0% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 0.001835065222 |
| Median | 0.07079009682 |
| Q3 | 0.3300674044 |
| 95-th percentile | 0.7080074335 |
| Maximum | 3.18867121 |
| Range | 3.18867121 |
| Interquartile range | 0.3282323391 |
Descriptive statistics
| Standard deviation | 0.2665436701 |
|---|---|
| Coef of variation | 1.36077252 |
| Kurtosis | 11.13989757 |
| Mean | 0.195876729 |
| MAD | 0.2035492467 |
| Skewness | 2.342995877 |
| Sum | 578.6198575 |
| Variance | 0.07104552806 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 633 | 19.0% | |
| 0.3492782096 | 4 | 0.1% | |
| 0.05549752582 | 2 | 0.1% | |
| 0.005779467681 | 2 | 0.1% | |
| 0.03178627145 | 1 | < 0.1% | |
| 0.1809995475 | 1 | < 0.1% | |
| 0.2588032093 | 1 | < 0.1% | |
| 0.6026772454 | 1 | < 0.1% | |
| 0.0960390804 | 1 | < 0.1% | |
| 0.2543768717 | 1 | < 0.1% | |
| Other values (2307) | 2307 | 69.3% | |
| (Missing) | 376 | 11.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 633 | 19.0% | |
| 7.207531871e-05 | 1 | < 0.1% | |
| 8.657098512e-05 | 1 | < 0.1% | |
| 9.279737693e-05 | 1 | < 0.1% | |
| 0.0001145278589 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 3.18867121 | 1 | < 0.1% | |
| 2.514579932 | 1 | < 0.1% | |
| 2.177065486 | 1 | < 0.1% | |
| 1.930307467 | 1 | < 0.1% | |
| 1.745177681 | 1 | < 0.1% |
managementFee
Highly correlated
This variable is highly correlated with ipoSize and should be ignored for analysis
| Correlation | 0.9167136414 |
|---|
manager
Categorical
| Distinct count | 1487 |
|---|---|
| Unique (%) | 44.7% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Goldman Sachs & Co | 126 |
|---|---|
| Merrill Lynch & Co Inc | 94 |
| CS First Boston Corp | 85 |
| Other values (1484) |
| Value | Count | Frequency (%) | |
| Goldman Sachs & Co | 126 | 3.8% | |
| Merrill Lynch & Co Inc | 94 | 2.8% | |
| CS First Boston Corp | 85 | 2.6% | |
| Morgan Stanley Dean Witter & Co | 73 | 2.2% | |
| Donaldson Lufkin & Jenrette Inc | 68 | 2.0% | |
| Lehman Brothers | 63 | 1.9% | |
| Hambrecht & Quist Inc | 45 | 1.4% | |
| Bear Stearns & Co Inc | 44 | 1.3% | |
| Friedman Billings Ramsey Group | 34 | 1.0% | |
| BancBoston Robertson Stephens Inc | 34 | 1.0% | |
| Other values (1477) | 2664 | 80.0% |
| Max length | 413 |
|---|---|
| Mean length | 43.19189189 |
| Min length | 4 |
| Contains chars | True |
| Contains digits | True |
| Contains spaces | True |
| Contains non-words | True |
nasdaq2weeksBefore
Highly correlated
This variable is highly correlated with dj2weeksBefore and should be ignored for analysis
| Correlation | 0.9299237865 |
|---|
netIncome
Numeric
| Distinct count | 2878 |
|---|---|
| Unique (%) | 86.4% |
| Missing (%) | 11.8% |
| Missing (n) | 392 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 0.8552797822 |
|---|---|
| Minimum | -4616 |
| Maximum | 6172 |
| Zeros (%) | < 0.1% |
Quantile statistics
| Minimum | -4616 |
|---|---|
| 5-th percentile | -82.17835 |
| Q1 | -22.08 |
| Median | -1.0535 |
| Q3 | 10.855 |
| 95-th percentile | 97.7448 |
| Maximum | 6172 |
| Range | 10788 |
| Interquartile range | 32.935 |
Descriptive statistics
| Standard deviation | 201.8411644 |
|---|---|
| Coef of variation | 235.9943127 |
| Kurtosis | 436.7384373 |
| Mean | 0.8552797822 |
| MAD | 49.52839668 |
| Skewness | 5.178382772 |
| Sum | 2512.812 |
| Variance | 40739.85564 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 357 | 4 | 0.1% | |
| 0.546 | 2 | 0.1% | |
| 4.332 | 2 | 0.1% | |
| -4.107 | 2 | 0.1% | |
| -28.8 | 2 | 0.1% | |
| 0.447 | 2 | 0.1% | |
| -27.59 | 2 | 0.1% | |
| 2.645 | 2 | 0.1% | |
| 7.272 | 2 | 0.1% | |
| 7.372 | 2 | 0.1% | |
| Other values (2867) | 2916 | 87.6% | |
| (Missing) | 392 | 11.8% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -4616 | 1 | < 0.1% | |
| -3445.066 | 1 | < 0.1% | |
| -1497.5 | 1 | < 0.1% | |
| -1481 | 1 | < 0.1% | |
| -1179 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 6172 | 1 | < 0.1% | |
| 2465 | 1 | < 0.1% | |
| 2109 | 1 | < 0.1% | |
| 1820 | 1 | < 0.1% | |
| 1177 | 1 | < 0.1% |
nExecutives
Numeric
| Distinct count | 45 |
|---|---|
| Unique (%) | 1.4% |
| Missing (%) | 42.9% |
| Missing (n) | 1429 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 11.21778012 |
|---|---|
| Minimum | 1 |
| Maximum | 89 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 3 |
| Q1 | 6 |
| Median | 11 |
| Q3 | 15 |
| 95-th percentile | 22 |
| Maximum | 89 |
| Range | 88 |
| Interquartile range | 9 |
Descriptive statistics
| Standard deviation | 6.626098282 |
|---|---|
| Coef of variation | 0.5906782102 |
| Kurtosis | 12.95767119 |
| Mean | 11.21778012 |
| MAD | 4.91980383 |
| Skewness | 1.957182811 |
| Sum | 21325 |
| Variance | 43.90517844 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=45)
| Value | Count | Frequency (%) | |
| 5 | 269 | 8.1% | |
| 12 | 136 | 4.1% | |
| 11 | 131 | 3.9% | |
| 13 | 125 | 3.8% | |
| 14 | 121 | 3.6% | |
| 10 | 115 | 3.5% | |
| 9 | 94 | 2.8% | |
| 8 | 90 | 2.7% | |
| 16 | 82 | 2.5% | |
| 15 | 82 | 2.5% | |
| Other values (34) | 656 | 19.7% | |
| (Missing) | 1429 | 42.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 38 | 1.1% | |
| 2 | 50 | 1.5% | |
| 3 | 42 | 1.3% | |
| 4 | 61 | 1.8% | |
| 5 | 269 | 8.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 89 | 1 | < 0.1% | |
| 53 | 1 | < 0.1% | |
| 52 | 1 | < 0.1% | |
| 50 | 1 | < 0.1% | |
| 48 | 1 | < 0.1% |
nPatents
Numeric
| Distinct count | 92 |
|---|---|
| Unique (%) | 2.8% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 5.376276276 |
|---|---|
| Minimum | 0 |
| Maximum | 2098 |
| Zeros (%) | 74.8% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 0 |
| Median | 0 |
| Q3 | 1 |
| 95-th percentile | 18 |
| Maximum | 2098 |
| Range | 2098 |
| Interquartile range | 1 |
Descriptive statistics
| Standard deviation | 48.65286311 |
|---|---|
| Coef of variation | 9.049546678 |
| Kurtosis | 1100.331268 |
| Mean | 5.376276276 |
| MAD | 8.894594414 |
| Skewness | 29.0217917 |
| Sum | 17903 |
| Variance | 2367.101089 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[0.000e+00 5.000e-01 1.500e+00 3.500e+00 9.500e+00 ... 4.850e+01 7.900e+01 1.315e+02 5.500e+02 2.098e+03], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 0 | 2491 | 74.8% | |
| 1 | 192 | 5.8% | |
| 2 | 95 | 2.9% | |
| 3 | 78 | 2.3% | |
| 5 | 42 | 1.3% | |
| 4 | 40 | 1.2% | |
| 6 | 37 | 1.1% | |
| 7 | 29 | 0.9% | |
| 9 | 27 | 0.8% | |
| 8 | 23 | 0.7% | |
| Other values (82) | 276 | 8.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 2491 | 74.8% | |
| 1 | 192 | 5.8% | |
| 2 | 95 | 2.9% | |
| 3 | 78 | 2.3% | |
| 4 | 40 | 1.2% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 2098 | 1 | < 0.1% | |
| 892 | 1 | < 0.1% | |
| 802 | 1 | < 0.1% | |
| 601 | 1 | < 0.1% | |
| 499 | 1 | < 0.1% |
nUnderwriters
Numeric
| Distinct count | 55 |
|---|---|
| Unique (%) | 1.7% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 10.42462462 |
|---|---|
| Minimum | 1 |
| Maximum | 83 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 2 |
| Q1 | 4 |
| Median | 7 |
| Q3 | 15 |
| 95-th percentile | 27 |
| Maximum | 83 |
| Range | 82 |
| Interquartile range | 11 |
Descriptive statistics
| Standard deviation | 8.630869813 |
|---|---|
| Coef of variation | 0.8279309926 |
| Kurtosis | 4.84455363 |
| Mean | 10.42462462 |
| MAD | 6.6483442 |
| Skewness | 1.768302383 |
| Sum | 34714 |
| Variance | 74.49191372 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 1. 2.5 3.5 4.5 5.5 ... 26.5 28.5 38.5 50.5 83. ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 4 | 464 | 13.9% | |
| 5 | 314 | 9.4% | |
| 3 | 240 | 7.2% | |
| 6 | 238 | 7.1% | |
| 2 | 186 | 5.6% | |
| 7 | 176 | 5.3% | |
| 8 | 142 | 4.3% | |
| 9 | 125 | 3.8% | |
| 10 | 112 | 3.4% | |
| 13 | 103 | 3.1% | |
| Other values (45) | 1230 | 36.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 86 | 2.6% | |
| 2 | 186 | 5.6% | |
| 3 | 240 | 7.2% | |
| 4 | 464 | 13.9% | |
| 5 | 314 | 9.4% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 83 | 1 | < 0.1% | |
| 72 | 1 | < 0.1% | |
| 63 | 1 | < 0.1% | |
| 58 | 1 | < 0.1% | |
| 55 | 1 | < 0.1% |
nVCs
Numeric
| Distinct count | 31 |
|---|---|
| Unique (%) | 0.9% |
| Missing (%) | 39.9% |
| Missing (n) | 1329 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 7.274862569 |
|---|---|
| Minimum | 1 |
| Maximum | 32 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 1 |
| Q1 | 3 |
| Median | 6 |
| Q3 | 10 |
| 95-th percentile | 18 |
| Maximum | 32 |
| Range | 31 |
| Interquartile range | 7 |
Descriptive statistics
| Standard deviation | 5.326388344 |
|---|---|
| Coef of variation | 0.7321634318 |
| Kurtosis | 1.06302519 |
| Mean | 7.274862569 |
| MAD | 4.267180752 |
| Skewness | 1.050645801 |
| Sum | 14557 |
| Variance | 28.37041279 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=31)
| Value | Count | Frequency (%) | |
| 1 | 216 | 6.5% | |
| 2 | 194 | 5.8% | |
| 3 | 192 | 5.8% | |
| 4 | 173 | 5.2% | |
| 5 | 134 | 4.0% | |
| 7 | 133 | 4.0% | |
| 6 | 127 | 3.8% | |
| 9 | 125 | 3.8% | |
| 8 | 125 | 3.8% | |
| 10 | 107 | 3.2% | |
| Other values (20) | 475 | 14.3% | |
| (Missing) | 1329 | 39.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 216 | 6.5% | |
| 2 | 194 | 5.8% | |
| 3 | 192 | 5.8% | |
| 4 | 173 | 5.2% | |
| 5 | 134 | 4.0% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 32 | 2 | 0.1% | |
| 31 | 1 | < 0.1% | |
| 30 | 2 | 0.1% | |
| 28 | 1 | < 0.1% | |
| 26 | 2 | 0.1% |
offerPrice
Numeric
| Distinct count | 117 |
|---|---|
| Unique (%) | 3.5% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 14.44826126 |
|---|---|
| Minimum | 1 |
| Maximum | 97 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1 |
|---|---|
| 5-th percentile | 6 |
| Q1 | 10.5 |
| Median | 14 |
| Q3 | 17 |
| 95-th percentile | 24 |
| Maximum | 97 |
| Range | 96 |
| Interquartile range | 6.5 |
Descriptive statistics
| Standard deviation | 6.225451429 |
|---|---|
| Coef of variation | 0.4308789353 |
| Kurtosis | 26.92075874 |
| Mean | 14.44826126 |
| MAD | 4.300797549 |
| Skewness | 3.031780348 |
| Sum | 48112.71 |
| Variance | 38.7562455 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 1. 3.75 4.125 4.875 5.094 ... 26.25 30.5 36.25 53. 97. ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 15 | 271 | 8.1% | |
| 12 | 263 | 7.9% | |
| 14 | 229 | 6.9% | |
| 16 | 222 | 6.7% | |
| 10 | 205 | 6.2% | |
| 13 | 192 | 5.8% | |
| 17 | 173 | 5.2% | |
| 11 | 165 | 5.0% | |
| 18 | 163 | 4.9% | |
| 8 | 129 | 3.9% | |
| Other values (107) | 1318 | 39.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1 | 1 | < 0.1% | |
| 3.25 | 2 | 0.1% | |
| 3.5 | 1 | < 0.1% | |
| 4 | 16 | 0.5% | |
| 4.25 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 97 | 1 | < 0.1% | |
| 91 | 1 | < 0.1% | |
| 85 | 1 | < 0.1% | |
| 70.41 | 1 | < 0.1% | |
| 65 | 1 | < 0.1% |
patRatio
Numeric
| Distinct count | 799 |
|---|---|
| Unique (%) | 24.0% |
| Missing (%) | 38.6% |
| Missing (n) | 1287 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 0.4454759403 |
|---|---|
| Minimum | 0 |
| Maximum | 2 |
| Zeros (%) | 8.0% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 0.25243195 |
| Median | 0.4444444444 |
| Q3 | 0.6202039825 |
| 95-th percentile | 1 |
| Maximum | 2 |
| Range | 2 |
| Interquartile range | 0.3677720325 |
Descriptive statistics
| Standard deviation | 0.2851204543 |
|---|---|
| Coef of variation | 0.6400355856 |
| Kurtosis | 1.048845793 |
| Mean | 0.4454759403 |
| MAD | 0.2233515281 |
| Skewness | 0.4538845919 |
| Sum | 910.1073459 |
| Variance | 0.08129367345 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 266 | 8.0% | |
| 0.5 | 134 | 4.0% | |
| 1 | 125 | 3.8% | |
| 0.3333333333 | 56 | 1.7% | |
| 0.6666666667 | 51 | 1.5% | |
| 0.25 | 31 | 0.9% | |
| 0.4 | 27 | 0.8% | |
| 0.6 | 20 | 0.6% | |
| 0.4444444444 | 19 | 0.6% | |
| 0.2857142857 | 18 | 0.5% | |
| Other values (788) | 1296 | 38.9% | |
| (Missing) | 1287 | 38.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 266 | 8.0% | |
| 0.02608695652 | 1 | < 0.1% | |
| 0.03846153846 | 1 | < 0.1% | |
| 0.04761904762 | 1 | < 0.1% | |
| 0.05263157895 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 2 | 4 | 0.1% | |
| 1.666666667 | 1 | < 0.1% | |
| 1.2 | 1 | < 0.1% | |
| 1.090909091 | 1 | < 0.1% | |
| 1.03125 | 1 | < 0.1% |
pe
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| False | |
|---|---|
| True |
| Value | Count | Frequency (%) | |
| False | 2650 | 79.6% | |
| True | 680 | 20.4% |
priorFinancing
Numeric
| Distinct count | 1706 |
|---|---|
| Unique (%) | 51.2% |
| Missing (%) | 42.6% |
| Missing (n) | 1417 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 128733.6259 |
|---|---|
| Minimum | 0 |
| Maximum | 5081687 |
| Zeros (%) | 3.4% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 23800.1 |
| Median | 62036 |
| Q3 | 133861.8 |
| 95-th percentile | 437296.4 |
| Maximum | 5081687 |
| Range | 5081687 |
| Interquartile range | 110061.7 |
Descriptive statistics
| Standard deviation | 265960.3259 |
|---|---|
| Coef of variation | 2.065974014 |
| Kurtosis | 121.7197935 |
| Mean | 128733.6259 |
| MAD | 120350.6287 |
| Skewness | 8.766243918 |
| Sum | 246267426.4 |
| Variance | 7.073489496e+10 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 113 | 3.4% | |
| 10000 | 8 | 0.2% | |
| 20000 | 6 | 0.2% | |
| 25000 | 6 | 0.2% | |
| 15000 | 5 | 0.2% | |
| 50000 | 5 | 0.2% | |
| 4000 | 4 | 0.1% | |
| 40000 | 4 | 0.1% | |
| 65000 | 4 | 0.1% | |
| 5000 | 4 | 0.1% | |
| Other values (1695) | 1754 | 52.7% | |
| (Missing) | 1417 | 42.6% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 113 | 3.4% | |
| 50 | 1 | < 0.1% | |
| 100 | 1 | < 0.1% | |
| 140 | 1 | < 0.1% | |
| 150 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 5081687 | 1 | < 0.1% | |
| 4654274.1 | 1 | < 0.1% | |
| 2423771.6 | 1 | < 0.1% | |
| 2313000 | 1 | < 0.1% | |
| 2300000 | 1 | < 0.1% |
prominence
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| 0 | |
|---|---|
| 1 |
| Value | Count | Frequency (%) | |
| 0 | 2386 | 71.7% | |
| 1 | 944 | 28.3% |
reputationAvg
Numeric
| Distinct count | 2034 |
|---|---|
| Unique (%) | 61.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 5.56139949 |
|---|---|
| Minimum | 0 |
| Maximum | 12.00133333 |
| Zeros (%) | 1.3% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 2.12525 |
| Q1 | 4.333916667 |
| Median | 5.992472222 |
| Q3 | 6.860875882 |
| 95-th percentile | 8.205216667 |
| Maximum | 12.00133333 |
| Range | 12.00133333 |
| Interquartile range | 2.526959216 |
Descriptive statistics
| Standard deviation | 1.883080978 |
|---|---|
| Coef of variation | 0.3385984016 |
| Kurtosis | 0.1807721954 |
| Mean | 5.56139949 |
| MAD | 1.516280313 |
| Skewness | -0.5092016474 |
| Sum | 18519.4603 |
| Variance | 3.54599397 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 0. 0.32146429 1.00025 1.00075 1.50020833 ... 6.80075 6.80096667 6.85814286 6.85814286 12.00133333], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 0 | 44 | 1.3% | |
| 7.001 | 34 | 1.0% | |
| 3.5005 | 29 | 0.9% | |
| 3.001 | 28 | 0.8% | |
| 8.001 | 28 | 0.8% | |
| 5.25075 | 23 | 0.7% | |
| 7.251 | 20 | 0.6% | |
| 4.0005 | 18 | 0.5% | |
| 6.001 | 16 | 0.5% | |
| 3.2505 | 16 | 0.5% | |
| Other values (2024) | 3074 | 92.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 44 | 1.3% | |
| 0.6429285714 | 1 | < 0.1% | |
| 0.667 | 2 | 0.1% | |
| 0.75025 | 1 | < 0.1% | |
| 0.8335 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 12.00133333 | 1 | < 0.1% | |
| 11.668 | 1 | < 0.1% | |
| 11.25125 | 1 | < 0.1% | |
| 11.00125 | 5 | 0.2% | |
| 10.75125 | 1 | < 0.1% |
reputationLeadAvg
Numeric
| Distinct count | 183 |
|---|---|
| Unique (%) | 5.5% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 6.803184849 |
|---|---|
| Minimum | 0 |
| Maximum | 9.001 |
| Zeros (%) | 6.9% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 5.750666667 |
| Median | 8 |
| Q3 | 9 |
| 95-th percentile | 9.001 |
| Maximum | 9.001 |
| Range | 9.001 |
| Interquartile range | 3.249333333 |
Descriptive statistics
| Standard deviation | 2.559349271 |
|---|---|
| Coef of variation | 0.3761986963 |
| Kurtosis | 1.082484501 |
| Mean | 6.803184849 |
| MAD | 2.001956801 |
| Skewness | -1.369782885 |
| Sum | 22654.60555 |
| Variance | 6.550268691 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[0. 0.5005 2.0005 2.2505 2.50025 ... 8.87525 8.93775 9.00025 9.00075 9.001 ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 9.001 | 777 | 23.3% | |
| 8.001 | 331 | 9.9% | |
| 0 | 230 | 6.9% | |
| 7.001 | 190 | 5.7% | |
| 8.501 | 138 | 4.1% | |
| 8.75 | 130 | 3.9% | |
| 5.001 | 107 | 3.2% | |
| 6.001 | 99 | 3.0% | |
| 9 | 88 | 2.6% | |
| 3.001 | 85 | 2.6% | |
| Other values (173) | 1155 | 34.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 230 | 6.9% | |
| 1.001 | 7 | 0.2% | |
| 1.5 | 1 | < 0.1% | |
| 1.501 | 2 | 0.1% | |
| 2 | 3 | 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 9.001 | 777 | 23.3% | |
| 9.0005 | 6 | 0.2% | |
| 9 | 88 | 2.6% | |
| 8.8755 | 6 | 0.2% | |
| 8.875 | 27 | 0.8% |
reputationLeadMax
Numeric
| Distinct count | 44 |
|---|---|
| Unique (%) | 1.3% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 7.403908108 |
|---|---|
| Minimum | 0 |
| Maximum | 9.001 |
| Zeros (%) | 6.9% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 7.001 |
| Median | 8.75 |
| Q3 | 9.001 |
| 95-th percentile | 9.001 |
| Maximum | 9.001 |
| Range | 9.001 |
| Interquartile range | 2 |
Descriptive statistics
| Standard deviation | 2.56569386 |
|---|---|
| Coef of variation | 0.3465323749 |
| Kurtosis | 2.482485605 |
| Mean | 7.403908108 |
| MAD | 1.877977427 |
| Skewness | -1.878679312 |
| Sum | 24655.014 |
| Variance | 6.582784983 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=44)
Histogram with variable size bins (bins=[0. 0.5005 2.0005 2.2505 2.7505 ... 8.6875 8.8125 8.9375 9.0005 9.001 ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 9.001 | 1470 | 44.1% | |
| 8.001 | 412 | 12.4% | |
| 7.001 | 244 | 7.3% | |
| 0 | 230 | 6.9% | |
| 8.75 | 136 | 4.1% | |
| 5.001 | 113 | 3.4% | |
| 9 | 91 | 2.7% | |
| 6.001 | 89 | 2.7% | |
| 3.001 | 85 | 2.6% | |
| 8.501 | 77 | 2.3% | |
| Other values (34) | 383 | 11.5% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 230 | 6.9% | |
| 1.001 | 7 | 0.2% | |
| 1.5 | 1 | < 0.1% | |
| 2 | 3 | 0.1% | |
| 2.001 | 33 | 1.0% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 9.001 | 1470 | 44.1% | |
| 9 | 91 | 2.7% | |
| 8.875 | 45 | 1.4% | |
| 8.75 | 136 | 4.1% | |
| 8.625 | 6 | 0.2% |
reputationSum
Highly correlated
This variable is highly correlated with nUnderwriters and should be ignored for analysis
| Correlation | 0.9577851468 |
|---|
rf
Categorical
| Distinct count | 3058 |
|---|---|
| Unique (%) | 91.8% |
| Missing (%) | 8.2% |
| Missing (n) | 273 |
| RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. HISTORY OF SUSTAINED OPERATING LOSSES AND CONTINUATION OF SUCH LOSSES The Company has incurred substantial and increasing operating losses since inception in 1991. The Company's net loss for 1995, 1996 and the three months ended March 31, 1997 was $6.2 million, $16.0 million and $7.5 million, respectively. As of March 31, 1997, the Company had an accumulated deficit of $36.4 million. Operating losses to date have resulted primarily from expenses incurred in the development, marketing and operation of the Coinstar units, development and maintenance of the network, administrative and occupancy expenses at the Company's headquarters, and depreciation and amortization. The Company expects to continue to incur substantial and increasing operating losses and negative cash flow from operating and investing activities as it plans to significantly increase its installed base of Coinstar units. See "Management's Discussion and Analysis of Financial Condition and Results of Operations.LIMITED OPERATING HISTORY After several years of development, the Company commenced commercial deployment of Coinstar units in 1994 and placed approximately 86% of the installed base as of March 31, 1997 in service during 1996 and the three months ended March 31, 1997. Prospective investors, therefore, have limited historical financial information on which to base an evaluation of the Company's performance. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in an early stage of development, particularly companies in new or rapidly evolving markets. There can be no assurance that the Company will install a sufficient number of its Coinstar units or obtain sufficient market acceptance to allow the Company to achieve or sustain profitability, or generate sufficient cash flow to meet the Company's capital and operating expenses and debt service obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business.UNCERTAINTY OF FUTURE OPERATING RESULTS Substantially all of the Company's revenue has been, and the Company believes will continue to be, derived from the processing fees charged for the Company's coin processing service. Prior growth rates in the Company's revenue should not be considered indicative of future operating results. The timing and amount of future revenues will depend almost entirely on the Company's ability to obtain new agreements with supermarket chains and other potential retail distribution partners for the installation of Coinstar units, the successful deployment and operation of the Company's coin processing network, and customer utilization of the service. Future operating results will depend upon many factors, including the Company's success in deploying a substantial number of additional units, the consumer demand for the Company's coin processing service, the level of product and price competition, the Company's success in expanding its national network and managing the growth of such network, the ability of the Company to develop and market product enhancements, the timing of product enhancements, activities of and acquisitions by competitors, the ability to hire additional employees and the timing of such hiring and the ability to control costs. Fluctuations in the volume and value of coins processed and the rate of unit installations have caused and may continue to cause material fluctuations in the Company's operating results, particularly on a 7 quarterly basis. Quarterly revenue and operating results, therefore, depend on the volume and mix of coins processed and the rate of unit installations during the quarter, all of which are difficult to forecast. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing.FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The customer utilization of the Company's coin processing service varies substantially from unit to unit, making the Company's revenues difficult to forecast. Customer utilization is affected by the timing and success of promotions by the Company and its supermarket partners, age of the installed unit, adverse weather conditions and other factors, many of which are not in the Company's control. Based on its limited operating history, the Company believes that coin processing volumes are affected by seasonality; in particular the Company believes that on a relative basis coin processing volumes have been lower in the months of January, February, September and October. There can be no assurance, however, that such seasonal trends will continue. Any projections of future seasonality are inherently uncertain due to the Company's limited operating history, and due to the lack of comparable companies engaged in the coin processing business. As a result of these and other factors, revenue for any quarter is subject to significant variation, and the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Because the Company's operating expenses are based on anticipated revenue trends and because a large percentage of the Company's expenses are relatively fixed, revenue variability could cause significant variations in operating results from quarter to quarter and could result in significant losses. To the extent such expenses precede, or are not subsequently followed by, increased revenue, the Company's operating results would be materially adversely affected. Due to all of the foregoing factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. Fluctuations in operating results may also result in volatility in the price of the Company's Common Stock. See "Risk Factors -- Possible Termination of Retail Distribution Partner Agreements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing.SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT The Company had outstanding indebtedness as of March 31, 1997 of $72.2 million, which included $68.4 million of the Company's 13.0% Senior Subordinated Discount Notes due 2006 (the "Notes"). The Notes will accrete to $95.0 million by October 1999. The Company must begin paying cash interest on the Notes in April 2000. Beginning at that time, the Company will have debt service obligations of over $12.0 million per year until October 2006 when the principal amount of $95.0 million will be due. The Company's capital expenditures will increase significantly upon the continued expansion of the Coinstar network, and the Company expects that its operating cash flow will be insufficient to finance capital expenditures over the next several years. The ability of the Company to meet its debt service requirements will depend upon achieving significant and sustained growth in the Company's cash flow, which will be affected by its success in implementing its business strategy, prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. Accordingly, there can be no assurance as to whether or when the Company's operations will generate positive cash flow or become profitable or whether the Company will at any time have sufficient resources to meet its debt service obligations. If the Company is unable to generate sufficient cash flow to service its indebtedness, it will have to reduce or delay planned capital expenditures, sell assets, restructure or refinance its indebtedness or seek additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all, particularly in light of the Company's high levels of indebtedness. In addition, the degree to which the Company is leveraged could have significant consequences, including, but not limited to, the following: (i) the Company's ability to obtain additional financing in the future for 8 working capital, capital expenditures, product research and development, acquisitions, and other general corporate purposes may be materially limited or impaired, (ii) a substantial portion of the Company's cash flow from operations may need to be dedicated to the payment of principal and interest on its indebtedness and therefore not available to finance the Company's business and (iii) the Company's high degree of leverage may make it more vulnerable to economic downturns, may limit its ability to withstand competitive pressures and may reduce its flexibility in responding to changing business and economic conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.COMPETITION The Company believes that it is the first company to provide a widespread network of self-service coin processing machines that provide a convenient, reliable means for consumers to convert loose coins into cash. The Company has become aware of two direct competitors that operate self-service coin processing machines, both of which the Company believes operate an installed base of less than 50 units in certain regions of the United States. There can be no assurance, however, that such competitors have not or will not increase their installed base of units or expand their service nationwide. The Company also competes indirectly with manufacturers of machines and devices that enable consumers to count or sort coins themselves. The Company also competes or may compete directly or indirectly with banks and similar depository institutions for coin conversion customers. Currently, banks are the primary alternative available to consumers for converting coins into cash, and they generally do not charge a fee for accepting rolled coins. As the market for coin processing develops, banks and other businesses may decide to offer additional coin processing services, either as a customer service or on a self-service basis, and compete directly with the Company. Many of these potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, marketing and public relations resources than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to consumers and businesses. There can be no assurance, however, that the Company's competitors, or others will not succeed in developing technologies, products or services that are more effective, less costly or more widely used than those that have been or are being developed by the Company or that would render the Company's technologies or products obsolete or noncompetitive. There can be no assurance that the Company will be able to compete effectively with current or future competitors or that the competitive pressures faced by the Company will not have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. See "Business -- Competition.DEPENDENCE ON CONTINUED MARKET ACCEPTANCE BY CONSUMERS AND RETAIL DISTRIBUTION PARTNERS The Company is substantially dependent on continued market acceptance of its coin processing service by consumers and its retail distribution partners, which have been almost exclusively supermarket chains. The self-service coin processing market is relatively new and evolving; accordingly, it is difficult to predict the future growth rate and size of this market. There can be no assurance that the Company will be successful in achieving the large-scale adoption of its coin processing service. While the Company's existing installed base of Coinstar units has been well received by both supermarket partners and customers to date, there can be no assurance that the operating results of the installed units will continue to be favorable or past results will be indicative of future market acceptance of the Company's service. The Company believes that market acceptance of the Coinstar unit is dependent on the consumer's perception that the units are convenient, easy to use and reliable. Even if the Company is successful in promoting awareness of the Coinstar unit among consumers, there can be no assurance that such consumers will utilize the Coinstar units in sufficient volume to make the Company profitable. In addition, market acceptance and ongoing use of the Coinstar service may be adversely affected by the increasing use of alternatives to coin 9 and currency transactions such as credit and debit cards, checks, wire transfers, smart cards and other forms of electronic payment. See "Business -- Sales and Marketing." Market acceptance of the Coinstar units is also dependent on the willingness of potential retail distribution partners to have the units installed in their stores. The Company believes that market acceptance by potential retail distribution partners will be dependent on its ability to demonstrate the utility of the Coinstar unit as a customer service and as a means to provide other tangible benefits, including increased customer traffic and the promotion of store sales. There can be no assurance, however, that potential retail distribution partners will be willing to place Coinstar units in their stores or that, once installed, Coinstar units will obtain market acceptance from consumers. Market acceptance and the Company's revenues may also be affected by the availability and success of coin processing services offered by competitors. In the event the Company's service does not achieve market acceptance or does so less rapidly than expected or the Company's contracts with one or more of its retail distribution partners is terminated, the Company and its results of operations, including its ability to achieve sufficient cash flow to service its indebtedness and achieve profitability, will be materially adversely affected. Moreover, the Company intends to deploy the Coinstar units in banks, convenience stores and mass merchants and is exploring opportunities for deployment in the international market. However, the Company has not yet entered such markets and there can be no assurance that, if entered, deployment in such markets would be successful. See "Risk Factors -- Possible Termination of Retail Distribution Partner Agreements" and "Business.POSSIBLE TERMINATION OF RETAIL DISTRIBUTION PARTNER AGREEMENTS The Company is substantially dependent upon its ability to enter into agreements with retail distribution partners for the installation of its Coinstar units. In addition, the Company generally has separate agreements with each of its retail distribution partners, providing for the Company's exclusive right to provide coin processing services in their retail locations. These contracts generally have terms ranging from two to three years and are generally terminable by either party with advance notice of at least 90 days. In addition, Coinstar units in service in several supermarket chains account for a significant portion of the Company's revenue. In 1996 and the first quarter ended March 31, 1997, Coinstar units in service in three supermarket chains accounted for approximately 36.2% and 30.3%, respectively, of the Company's revenue for such periods. The units in service in two of these chains, Ralphs Grocery Co. ("Ralphs") and Quality Food Centers, Inc., including Hughes Markets, Inc., its subsidiary, ("QFC-Hughes"), accounted for approximately 12.7% and 14.9%, respectively, of the Company's 1996 revenue and 12.2% and 9.1%, respectively, of the Company's revenue in the first quarter ended March 31, 1997. The termination of any one or more of the Company's contracts with its retail distribution partners could have a material adverse effect on the Company's business, financial condition, results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. See "Business -- Sales and Marketing.MANAGEMENT OF GROWTH The Company has experienced rapid growth and intends to continue to aggressively expand its operations. The growth in the size and scale of the Company's business has placed and is expected to continue to place significant demands on its operational, administrative and financial personnel and operating systems. Additional planned expansion by the Company may further strain management and other resources. The Company's ability to manage growth effectively will depend on its ability to improve its operating systems, to expand, train and manage its employee base and to develop additional manufacturing and service capacity. In particular, the Company will be required to rapidly expand its operating systems and processes in order to support the projected installations of Coinstar units and the potential addition of value-added services. Such expansion will require improvements to both hardware and software and the hiring and training of additional software engineers. In addition, the Company will be required to 10 establish relationships with additional third-party service providers. These demands, and others, will require the addition of new management personnel and the development of additional expertise by existing management personnel. There can be no assurance that the Company will be able to effectively manage the expansion of its operations, or that the Company's systems, procedures or controls will be adequate to support the Company's operations or that Company management will be able to achieve and manage the rapid roll-out currently projected. If the Company is unable to manage growth effectively, the Company's business, financial condition and results of operations and its ability to achieve sufficient cash flow to service its indebtedness will be materially adversely affected. See "Business.DEPENDENCE ON A SINGLE SERVICE The Company has and expects for the foreseeable future to derive substantially all of its revenues from the operation of Coinstar units. Accordingly, market acceptance of the Company's coin processing service is critical to the Company's future success. Since there is only a limited existing market for the Company's coin processing service, there can be no assurance that an acceptable level of demand will be achieved or sustained. If sufficient demand for the Company's coin processing service does not develop due to lack of market acceptance, technological change, competition or other factors, the Company's business, financial condition and results of operations and its ability to achieve sufficient cash flow to service its indebtedness will be materially adversely affected. See "Risk Factors -- Dependence on Continued Market Acceptance By Consumers and Retail Distribution Partners" and "Business -- Sales and Marketing.EXPOSURE TO COMPONENT SHORTAGES FROM SINGLE SOURCE SUPPLIER The Company currently purchases the coin counter component of the Coinstar unit from a single manufacturer, Scan Coin AB, pursuant to an agreement that may be terminated by either party with six months notice at any time on or after June 30, 1998. The Company has entered into a non-binding letter of intent with Scan Coin AB for a new agreement, although no assurance can be given that the parties will enter into a new agreement. Currently, no other manufacturer produces a coin counter capable of being used in the Coinstar units without extensive enhancements and modifications. No assurance can be given that Scan Coin AB will be able or willing to supply coin counter components to the Company in the future. The Company believes it would require up to 12 months to source and make necessary modifications to an alternative coin counter component. Moreover, it could take several additional months for any such alternative supplier to meet the Company's required volume levels. Accordingly, any cessation, slow-down or disruption in the Company's current supply of coin counter components would have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. Although the Company believes alternative suppliers are available, there can be no assurance that the Company would be able to locate an alternate supplier on a timely or cost-efficient basis, if at all, and make the necessary modifications and enhancements to the design of the Coinstar unit to utilize such replacement, both of which, in the event of their nonoccurrence, would materially impair its ability to have Coinstar units manufactured. A prolonged inability to obtain certain components could have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness, particularly as the Company increases its manufacturing requirements to support its nationwide deployment. See "Business -- Manufacturing and Supply.RELIANCE ON THIRD-PARTY MANUFACTURER AND SERVICE PROVIDERS The Company does not conduct manufacturing operations and is dependent and will continue to be dependent on outside parties for the manufacture of the Coinstar unit and its key components. While Coinstar intends to significantly expand its installed base, such expansion may be constrained by the manufacturing capacity of its third-party manufacturers and suppliers. Although the Company expects that its current contract manufacturer, SeaMed Corporation ("SeaMed") will be able to produce sufficient 11 units to meet projected demand, there can be no assurance that SeaMed or other manufacturers will be able to meet the Company's manufacturing needs in a satisfactory and timely manner. In the event of an unanticipated increase in demand for Coinstar unit installations by retail distribution partners, the Company may be unable to meet such demand due to manufacturing constraints. Although the Company has a contract with SeaMed, it does not have a long-term obligation to continue the manufacture of the Coinstar unit or its components. Further, SeaMed is principally engaged in the manufacture of electronic medical instruments for medical technology companies. The Company believes that it is SeaMed's only material non-medical customer. As such, the Company faces an increased risk that SeaMed may choose to focus exclusively on manufacturing its medical products and cease making the Company's products. Should SeaMed cease providing services, the Company would be required to locate and qualify additional suppliers. There can be no assurance that the Company would be able to locate alternate manufacturers on a timely basis. The Company's reliance on third-party manufacturers involves a number of additional risks, including the absence of guaranteed capacity and reduced control over delivery schedules, quality assurance, production yields and costs. There can be no assurance that the manufacturing capability of such third-party manufacturers will successfully address the Company's needs. In the event the Company is unable to retain such manufacturing on commercially reasonable terms, its business, financial condition and results of operation and its ability to achieve sufficient cash flow to service its indebtedness will be materially adversely affected. See "Business -- Manufacturing and Supply." The Company relies on third-party service providers for substantial support and service efforts that the Company currently does not provide directly. In particular, the Company contracts with armored carriers to arrange for the pick-up, processing and deposit of coins. The Company generally contracts with one armored carrier to service a particular region. Many of these carriers do not have long-standing relationships with the Company and these contracts generally can be terminated by either party with advance notice ranging from 30 to 90 days. In the past, the Company has experienced a sudden disruption in service from an armored carrier company. The Company does not currently have nor does it expect to have in the foreseeable future the internal capability to provide back up service in the event of sudden disruption in service from an armored carrier company. Any failure by the Company to maintain its existing relationships or to establish new relationships on a timely basis or on acceptable terms would have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. Moreover, as with any business that handles large volumes of cash, the Company is susceptible to theft, counterfeit and other forms of fraud, including security breaches of the Company's computing system that performs important accounting functions. There can be no assurance that the Company will be successful in developing product enhancements and new services to thwart such attempts. See "Business -- The Coinstar System.RISK OF DEFECTS IN OPERATING SYSTEMS The Company collects financial and operating data and monitors unit performance through a wide-area communications network connecting each of the Coinstar units with a central computing system located at the Company's headquarters. This information is used to track the flow of coins, verify coin counts and schedule and dispatch unit service. The operation of the Coinstar units depends on sophisticated software, computing systems and communications services that may contain undetected errors or are subject to failures. These errors and failures may arise particularly when new services or service enhancements are added or when the volume of services provided increases. Although each unit is designed to store all data collected, helping to ensure critical data is not lost due to an operating systems failure, the inability of the Company to collect the data from its units could lead to a delay in processing coins and crediting the accounts of its distribution partners for vouchers already redeemed. Further, there can be no assurance that the design of the operating systems to prevent the loss of data will operate as intended and any loss of or delay in collecting coin processing data would materially and adversely effect the Company's operations. In addition, the Company has in the past experienced limited delays and disruptions resulting from upgrading or improving its operating systems. Although such disruptions have not had a material 12 effect on the Company's operations, there can be no assurance that future upgrades or improvements will not result in delays or disruptions that would have a material adverse impact on the Company's operations. In particular, the Company is currently planning some significant improvements in its operating platform in order to support its projected expansion of the installed base of Coinstar units and the potential addition of value-added services. While the Company is taking steps to ensure that the potential adverse impact of such improvements on the Company's operations is minimized, there can be no assurance that the platform will be able to handle the increased volume of services expected from the continued expansion of the Company's network and the potential addition of value-added services or that the improvements will occur on a timely basis so as not to disrupt such continued expansion and potential addition of value-added services. In addition, the communications network on which the Company relies is not owned by the Company and is subject to service interruptions. Further, while the Company has taken significant steps to protect the security of its network, any breach of such security whether intentional or from a computer virus could have a material adverse impact on the Company. Any service disruptions, either due to errors or delays in the Company's software or computing systems or interruptions or breaches in the communications network, or security breaches of the system, could have a material adverse affect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. See "Business -- The Coinstar System.DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL The Company's performance is substantially dependent on the performance of its executive officers and key employees and its long term success will depend on its ability to recruit, retain and motivate highly skilled personnel. Jens H. Molbak, President and Chief Executive Officer, Rod W. Brooks, Vice President of Sales and Marketing, Aaron R. Finch, Vice President of Operations, and Daniel A. Gerrity, Vice President and Chief Technical Officer, have been primarily responsible for the development and expansion of the Company's business. The Company recently hired Kirk A. Collamer as Vice President and Chief Financial Officer. All of the Company's executive officers and employees are employed on an at-will basis. The loss of the services of any of these executive officers or other key employees or the inability to attract and retain necessary technical and managerial personnel could have a material adverse effect upon the Company's business, financial condition and results of operation and on its ability to achieve sufficient cash flow to service its indebtedness. Presently, the Company maintains a "key man" life insurance policy on Mr. Molbak in the amount of $2.0 million. See "Management.UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS The Company's future success depends, in part, on its ability to protect its intellectual property and maintain the proprietary nature of its technology through a combination of patents, licenses and other intellectual property arrangements, without infringing the proprietary rights of third parties. In October 1996 and April 1997, the Company was issued United States patents relating to removing debris from coins processed in a self-service environment and other aspects of self-service coin processing. These patents will expire in October 2013 and April 2014, respectively. Sufficient debris removal is important to reducing clogging and malfunctioning. Reducing these problems and the associated downtime improves unit availability for customer use and reduces the amount of time that Company or retail partner personnel must spend attending to the unit, both of which are important features of operating in a self-service environment. No assurance can be given that any patents from any pending patent applications or from any future patent applications will be issued, that any of the Company's patents will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights held by the Company. Moreover, there can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection to the Company. Despite the Company's efforts to safeguard and maintain its proprietary rights, there can be no assurance that the Company will be successful in doing so or that the Company's competitors will not independently develop or patent technologies that are substantially equivalent or superior to the Company's technologies. On June 18, 1997, the Company filed 13 in the United States District Court, Northern District of California against CoinBank Automated Systems, Inc. ("CoinBank"), one of its competitors, a complaint for infringement of one of the Company's United States patents (the "Patent Infringement Claim"). Coin | 1 |
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| RISK FACTORS You should carefully consider the following factors and other information in this prospectus before deciding to invest in shares of our common stock. RISKS RELATING TO OUR BUSINESS: IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE OUR GROWTH, OUR PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED Our strategy is designed to enhance profitability by increasing sales in existing stores and generating sales in new stores. However, we must successfully manage our growth to realize this strategy. Our growth will be adversely affected if we are unable to: - identify suitable markets and sites for new stores - negotiate leases on acceptable terms - maintain levels of service that are expected by customers - provide a diverse inventory of bridal gowns and flower girl, bridesmaid, mothers-of-the-bride and -groom and other special occasion dresses, accessories and other product offerings in attractive styles - avoid reducing sales and profitability at existing stores when opening new stores in the same region or market area - offer prices that appeal to a broad range of consumers - manage inventory on an effective basis - deliver products on a timely basis - test new product offerings on an effective basis - hire, train and retain competent managers and personnel capable of providing high levels of customer service - improve, upgrade and expand our infrastructure to accommodate our growth - expand our distribution facility or add additional distribution facilities, as necessary Our profitability will be materially adversely affected if we are unable to successfully manage our growth.IF OUR MANAGEMENT INFORMATION SYSTEMS ARE DISRUPTED OR WE ARE NOT ABLE TO EFFECTIVELY UPGRADE AND EXPAND OUR MANAGEMENT INFORMATION SYSTEMS, OUR PROFITABILITY, BUSINESS OPERATIONS AND EXPANSION WILL BE ADVERSELY AFFECTED We depend on management information systems for all major aspects of our business. We will be materially adversely affected if our management information systems are disrupted or we are unable to improve, upgrade and expand our systems on an effective basis. Our expansion strategy may be adversely affected if we are not able to successfully expand our current hardware and network infrastructure, including the development of a communications infrastructure and the creation of data warehouses for store, marketing and customer information to improve controls and enhance sales and operational capabilities. We cannot assure you that our planned expansion or upgrades will be completed on a timely basis and successfully. See "Business--Management Information Systems."IF WE ARE NOT ABLE TO ANTICIPATE AND RESPOND TO CONSUMER DEMAND, WE WILL BE COMPELLED TO REDUCE PRICES AND MAY BE LEFT WITH EXCESS INVENTORY, AND THIS WILL MATERIALLY ADVERSELY AFFECT OUR SALES AND PROFITABILITY Our success will depend on our ability to anticipate and respond to consumer demand. We must identify and respond to changing consumer preferences with respect to bridal gowns and related bridal wear, accessories and our other product offerings. Fashion trends can be volatile. This is particularly true for bridesmaid and special occasion dresses. Our success depends on our ability to anticipate and effectively respond to these trends. If we do not provide merchandise that is desired by a sufficient number 8 9 of customers, we will be compelled to reduce prices and we may be left with excess inventory. Our sales and profitability will be materially adversely affected if we do not anticipate and effectively respond to customer demands.IF OUR ASIAN MANUFACTURERS ARE NOT ABLE TO PROVIDE US WITH SUFFICIENT MERCHANDISE TO MEET CUSTOMER DEMAND OR IF OUR IMPORTS ARE DISRUPTED, OUR SALES AND PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED Substantially all of our bridal gowns and flower girl dresses are manufactured in Asia. Substantially all of our other product offerings are currently manufactured domestically. We may in the future seek to manufacture a portion of this apparel internationally. Our sales and profitability could be materially adversely affected by our reliance on international manufacturing. Some of the risks in manufacturing overseas include: - changes in laws and regulations - compliance with labor laws and ethical standards - tariffs, quotas and other trade barriers - work stoppages - political and financial instability - fluctuations in currency exchange rates - increases in freight costs Virtually all of our bridal gowns are manufactured in China. There have been a number of recent trade disputes between China and the United States during which the Unites States has threatened to impose punitive tariffs and duties on products imported from China and to withdraw China's "most favored nation" trade status. Since a substantial portion of our total revenues is derived from the sale of bridal gowns, we are particularly vulnerable to the risk of loss of the most favored nation status for China, changes in the current tariff or duty structures or the adoption by the United States of other trade policies or sanctions adverse to China. In addition, the violation of labor laws by an independent manufacturer, or the divergence of a manufacturer's labor practices from those generally accepted as ethical in the United States, could have a material adverse effect on our image and reputation and as a result, adversely effect our sales and profitability. We cannot control the actions of our manufacturers and we cannot assure you that they will conduct their business using ethical labor practices. Furthermore, our import operations are subject to constraints imposed by bilateral textile agreements between the United States and a number of foreign countries. These agreements and other applicable treaties impose quotas on the amounts and types of merchandise which may be imported into the United States from these countries. These agreements and other applicable treaties also allow the United States to impose restraints at any time on the importation of categories of merchandise that, under the terms of the agreements, are not currently subject to specified limits. Our sales and profitability may be materially adversely affected if the United States or the countries in which our products are produced impose new quotas, duties, tariffs or other restrictions, or adversely adjust the prevailing quota, duty or tariff levels.WE RELY ON OUR JOINT VENTURE PARTNER TO INSURE THE QUALITY OF IMPORTED GOODS, AND OUR QUALITY CONTROL COULD BE NEGATIVELY AFFECTED IF OUR JOINT VENTURE PARTNER DOES NOT PERFORM ACCEPTABLY We depend on our Hong Kong based joint venture to handle our relationships with international manufacturers of our bridal wear. The quality of our product may be materially adversely affected if our joint venture partner does not perform its responsibilities on an acceptable basis or terminates our relationship and we are unable to replace our joint venture partner on a prompt basis. See note 5 to our consolidated financial statements. This joint venture is equally owned by us and one of our shareholders, Addwood Limited. We handle negotiations with the manufacturers with respect to basic economic terms 9 10 and product design. We depend on our joint venture partner to identify suitable manufacturers and insure that our manufacturers are meeting design specifications, adhering to shipping requirements and complying with our business standards.IF OUR MANUFACTURERS, MANY OF WHOM HAVE LIMITED RESOURCES, ARE UNABLE TO SUPPORT THE CONTINUED EXPANSION OF OUR BUSINESS, OUR SALES AND PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED Many of the third parties we use to manufacture our apparel have limited resources, production capabilities and operating histories. These manufacturers may be unable to support the continued expansion of our business. Our relationships with our manufacturers are not on a contractual basis and do not assure adequate supply or quality or acceptable pricing on a long-term basis. A manufacturer could discontinue selling to us at any time. Our sales and profitability may be materially adversely affected if we are unable to promptly replace a manufacturer who is unwilling or unable to satisfy our requirements.IF WE ARE NOT ABLE TO MAINTAIN OUR COMPARABLE STORE SALES GROWTH OR PREVENT FLUCTUATIONS IN COMPARABLE STORE SALES, OUR PROFITABILITY MAY BE MATERIALLY ADVERSELY AFFECTED Our comparable store sales have fluctuated significantly in the past. Comparable store sales will continue to fluctuate. Comparable store sales may be affected by many factors, including: - competition and economic conditions - fashion trends - weather conditions - new store openings in existing markets - procurement and management of merchandise inventory - customer response to new and existing styles - store relocations We are not likely to maintain comparable store sales growth at our current levels. Our profitability may be materially adversely affected by declines and fluctuations in our comparable store sales.IF OUR FINANCIAL RESULTS DO NOT MEET EXPECTATIONS AS A RESULT OF FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS, THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO DECLINE Our financial results may substantially fluctuate during any reporting period due to a number of factors. Historical trends indicate that our sales are typically highest from January through April and lowest from October through December. Our financial results may also fluctuate as a result of: - performance of new and existing stores - pre-opening expenditures for new stores - the timing of new store openings - the timing of holidays - competition and economic conditions - fashion trends - weather conditions - procurement and management of merchandise inventory - customer response to new and existing styles 10 11 Our expenditures for inventory, personnel and other pre-opening items for new stores may adversely affect period-to-period financial results. New stores may fail to generate sales as promptly as planned. New stores may also depress sales in our other stores that are located in the same regions or market areas. Our financial results may not meet the expectations of analysts and investors. The market price of our common stock is likely to decline when we do not meet these expectations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results and Seasonality."IF ADDITIONAL FINANCING IS NOT AVAILABLE, WE MAY BE UNABLE TO RESPOND TO COMPETITIVE PRESSURES OR UNANTICIPATED REQUIREMENTS Our business may be adversely affected if the unavailability of additional financing prevents us from responding to competitive pressures or unanticipated requirements. We may need additional financing if we accelerate our expansion program or our operating results decline. Additional funds may also be necessary to respond to competitive pressures or unanticipated requirements. Additional financing may not be available on satisfactory terms or at all. Any additional equity financing may cause investors to experience dilution. Any debt financing may result in restrictions on our spending or payment of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."IF WE ARE NOT ABLE TO RETAIN OR REPLACE OUR KEY PERSONNEL, OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED Our success will depend on the continued employment of our executive management team after this offering. If one or more members of our management team do not continue in their present positions, our business could be materially adversely affected. Steven H. Erlbaum, our Chairman and Chief Executive Officer, will resign from his position as Chief Executive Officer upon the closing of this offering. Robert D. Huth, our President and Chief Operating Officer, will also become our Chief Executive Officer upon the closing of this offering. Although Mr. Huth has been primarily responsible for running our day-to-day operations since joining us in 1995, we will be materially adversely affected if Mr. Huth is unable to assume these added responsibilities on a timely and effective basis. See "Management -- Executive Officers and Directors." We have employment agreements with Robert D. Huth and with Philip Youtie that will become effective upon completion of this offering. Mr. Huth's employment agreement will provide for a three year term. Mr. Youtie's employment agreement will provide for a two year term. In addition, effective following completion of this offering, Steven H. Erlbaum will become a consultant to us. We will have a three year consulting agreement with Steven H. Erlbaum. We have no employment or consulting agreement with any of our other employees or consultants. See "Management -- Employment and Consulting Agreements." Our expansion strategy will depend on our ability to hire capable managers and other store level personnel. The need for such personnel is particularly important because purchasers of bridal wear typically expect a high level of service and attentiveness. We will be materially adversely affected if we do not hire capable store managers and other store level personnel.IF OUR SYSTEMS ARE NOT YEAR 2000 COMPLIANT, WE MAY NOT BE ABLE TO CONDUCT NORMAL BUSINESS ACTIVITIES Historically, many computerized systems have used two digits rather than four to define the applicable year. Computer equipment and software and devices with imbedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations. This problem is generally referred to as the "Year 2000 issue." As a result of the Year 2000 issue, possible adverse consequences to our business include the inability to engage in normal business activities resulting from one or more of the following: - loss of communications links with one or more of our store locations 11 12 - disruptions in the movement of inventory to and from our distribution center and between store locations - failure of our inventory management systems - the inability to process transactions with customers - the inability to send purchase orders - the inability to fulfill customer orders in a timely fashion - failure of our vendors to provide us with suitable products - failure of our credit card processors to correctly process customer transactions - failure of our telecommunications service Not all of our information systems are Year 2000 compliant and not all of the third parties with whom we conduct our business have indicated that their information systems are Year 2000 compliant. If we and these third parties do not effectively change, or replace, our management information systems to make them Year 2000 compliant, our business will be materially adversely affected. We discuss the impact that the Year 2000 issue may have on our business, our expected costs to address our Year 2000 issues and our contingency plans in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. RISKS RELATING TO OUR INDUSTRY:A DETERIORATION OF ECONOMIC CONDITIONS COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS, SALES AND PROFITABILITY Our business, sales and profitability could be materially adversely affected by unfavorable economic conditions. Purchases of bridal wear and accessories may decline during recessionary periods. Prices that consumers may be willing to pay for bridal wear and accessories may be lower during times of economic duress. Our business, sales and profitability will likely be materially adversely affected by a deterioration in general economic conditions.IF WE ARE UNABLE TO RESPOND TO COMPETITION IN THE BRIDAL WEAR BUSINESS, OUR SALES AND PROFITABILITY MAY BE ADVERSELY AFFECTED The retail bridal wear business is highly competitive. We compete with local stores, regional chains and bridal warehouses that may have an established following in a community. We also compete with department stores that may also sell through catalogs and that have substantially greater financial and other resources. Specialty stores and a larger number of department stores provide additional competition in the sale of bridesmaid and special occasion dresses. Many retailers of other products that follow a growth strategy similar to ours rely on large selections and comparatively low prices to compete. However, the purchase of bridal wear is a very personal and emotional decision. We must provide a high level of service to compete effectively. Our business, sales and profitability will be materially adversely affected if we do not compete successfully. See "Business--Competition in the Bridal Industry." RISKS RELATING TO THIS OFFERING:BECAUSE A SMALL NUMBER OF SHAREHOLDERS MAY CONTROL ALL MAJOR CORPORATE DECISIONS DUE TO SIGNIFICANT OWNERSHIP CONCENTRATION OF OUR COMMON STOCK, OUR OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE ANY OF THESE CORPORATE DECISIONS Our major shareholders will have the power to elect our board of directors and approve actions requiring the approval of the majority of our shareholders if they decide to act together. Upon the consummation of this offering, Steven H. Erlbaum, Michael C. Erlbaum, Gary E. Erlbaum, Philip Youtie, 12 13 and Steven J. Sidewater, together with members of their immediate family, trusts for the benefit of members of their immediate family, and family partnerships in which members of their immediate family are partners, will own 8.8%, 2.3%, 6.6%, 6.2% and 3.3%, respectively, of our outstanding common stock. The Clipper Group partnership will own 24.9% of our outstanding common stock. These shareholders will own 52.1% in the aggregate. Steven, Michael and Gary Erlbaum are brothers and directors. The interests of these significant shareholders could conflict with the interests of our other shareholders.SINCE OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED, WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK, OR WHETHER YOU WILL BE ABLE TO SELL YOUR STOCK There has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price was determined by negotiations between representatives of the underwriters, the selling shareholders and us and may not be indicative of prices that will prevail in the trading market.ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A SALE OF DAVID'S BRIDAL, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK We are a Florida corporation. There are anti-takeover provisions of Florida law that could make it more difficult for a third party to acquire control of our company, even if such a change in control would be beneficial to our shareholders. Our articles of incorporation divide our board into three classes and provide that our board of directors may issue preferred stock without shareholder approval. The existence of a classified board or issuance of preferred stock could make it more difficult for a third party to acquire our company.IF OUR SHAREHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, INCLUDING SHARES ISSUED UPON THE EXERCISE OF OUTSTANDING OPTIONS, IN THE PUBLIC MARKET FOLLOWING THIS OFFERING, THEN THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE Restrictions under the securities laws and lock-up agreements signed by several of our significant shareholders limit the number of shares of common stock available for sale in the public market. Effective upon completion of this offering, the holders of 11,041,827 shares of common stock and options exercisable into an aggregate of 729,800 shares of common stock have agreed, subject to some exceptions, not to sell any such securities for 180 days after this offering without the prior written consent of Donaldson, Lufkin and Jenrette Securities Corporation. Following completion of the offering, holders of 11,041,827 shares of common stock will have demand or piggy-back registration rights. The demand registration rights may only be exercised by The Clipper Group, but all holders of registration rights are permitted to include shares in the demand offering on the same basis as The Clipper Group. The exercise of such rights could adversely affect the market price of our common stock. We plan to file a registration statement to register all shares of common stock under our stock option plan. After such registration statement is effective, shares issued upon exercise of stock options will be eligible for resale in the public market without restriction. 13 | 1 |
| risk factors an investment in our common stock involves a number of risks. before making an investment decision, you should carefully consider all of the risks described below and the other information contained in this prospectus. if any of the risks discussed in this prospectus actually occur, our business, financial condition, liquidity and results of operations could be materially adversely affected. if this were to occur, the value of our common stock could decline and you may lose all or part of your investment. risks related to conflicts of interest and our relationship with our manager the management agreement was not negotiated on an arms-length basis and the terms, including fees payable, may not be as favorable to us as if it was negotiated with an unaffiliated third party. the management agreement was negotiated between related parties, and we did not have the benefit of arms-length negotiations of the type normally conducted with an unaffiliated third party and the terms, including fees payable, may not be as favorable to us. we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain our ongoing relationship with our manager.the contribution agreement for the initial assets was not negotiated on an arms-length basis and we did not receive independent appraisals of the initial assets to be contributed upon completion of this offering and the terms of the contribution agreement, including the consideration paid by us in exchange for the initial assets, may not be as favorable to us as if it was negotiated with an unaffiliated third party. the contribution agreement was negotiated between related parties, and we did not have the benefit of arms-length negotiations of the type normally conducted with an unaffiliated third party and the terms, including the terms of the contributed assets, may not be as favorable to us. we have not obtained any independent third-party appraisals of the assets to be contributed to us upon the completion of this offering. these assets will be contributed to us by our manager, and, in exchange, we will agree to issue our manager cash proceeds from this offering and shares of our common stock. as a result, the consideration to be paid by us in exchange for the contribution of the assets upon the completion of this offering may exceed the fair market value of these assets. in addition, we may choose not to enforce, or to enforce less vigorously, our rights under the contribution agreement because of our desire to maintain our ongoing relationship with our manager.our manager will source primarily all of our investments and we will also participate in investments in which our manager and its affiliates are also participating, which could result in conflicts of interest. our manager will source primarily all of our investments and we will also participate in investments in which our manager and its affiliates are also participating. certain of our investments may be subordinate to investments made by our manager in the same issuer or project. transactions originated by, or in which we co-invest or participate with, our manager are not and will not be the result of arms-length negotiations and involve conflicts between our interests and the interests of our manager in obtaining favorable terms and conditions. although we have adopted a conflicts of interest policy to specifically address some of the conflicts relating to our investments, which is described under our manager and management agreementconflicts of interest policies, there is no assurance that this policy will be adequate to address all of the conflicts that may arise. in each case, some of the same officers will be determining the price and terms for the investments for both us and our manager and there can be no assurance that the procedural protections, such as obtaining market prices or other reliable indicators of fair market value or appointing a third party servicer in the event of a loans default, will be sufficient to assure that the consideration we pay for these investments will not exceed their fair market value and that we would not receive more advantageous terms for an investment had we negotiated the purchase with an independent third party. in addition, since our managers officers and employees are also responsible for providing the same services for our managers portfolio of investments, they may not devote sufficient time to the management of our business operations. our interests in such investments may conflict with the interests of such other vehicles or accounts in related investments in the event of a default or restructuring of the investment. we may compete with existing and future investment vehicles for access to our manager, which may reduce investment opportunities available to us. in the future, our manager may sponsor separate investment vehicles with investment focuses that overlap with our investment focus. under the management agreement, we have the right to terminate the agreement for cause if our manager raises, sponsors, forms or advises any new investment fund, company or vehicle, including any reit, that invests primarily in commercial mortgage loans or other commercial real estate loans, such as mezzanine loans (but specifically excluding cmbs and other similar pass through securities) in the united states. however, we may choose to not enforce our right to terminate the management agreement. accordingly, we may compete for access to the benefits that we expect our relationship with our manager to provide and for the time of their investment professionals to carry out and facilitate our investment activities. we may make investments that are senior or junior to participations in, or have rights and interests different from or adverse to, the investments made by other vehicles or accounts managed by our manager. our interests in such investments may conflict with the interests of such other vehicles or accounts in related investments at the time of origination or in the event of a default or restructuring of the investment.non-renewal of our management agreement would be difficult and costly. electing not to renew the management agreement without cause would be difficult and costly for us. with the consent of the majority of our independent directors, we may elect without cause not to renew our management agreement after june30, 2009, the initial term of the management agreement, or upon the expiration of any automatic renewal term, both upon 180 days prior written notice. if we elect not to renew the agreement because of a decision by the majority of our independent directors that the base management fee or the incentive fee is unfair, our manager has the right to renegotiate a mutually agreeable base management fee or incentive fee. if we elect not to renew the management agreement without cause, we are required to pay our manager a termination fee equal to two times the base management fee and the incentive fee, both as earned by our manager during the 12-month period immediately preceding the most recently completed calendar quarter prior to the date of expiration. if the management agreement is not renewed after march 31, 2011 by reason of underperformance of our manager (as defined in the management agreement) , we are required to pay our manager a termination fee equal to 1% of our equity at the effective time of nonrenewal. these provisions may increase the effective cost to us of electing not to renew the management agreement.our managers base management fee is payable regardless of our performance. our manager is entitled to receive a base management fee from us that is based on the amount of our equity (as defined in the management agreement), regardless of the performance of our portfolio. for example, we would pay our manager a base management fee for a specific period even if we experienced a net loss during the same period. our managers entitlement to substantial nonperformance-based compensation might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio. this in turn could hurt our ability to make distributions to our stockholders and the market price of our common stock.our managers incentive fee may induce it to make more speculative investments. our manager is entitled to an incentive fee from us that may cause it to invest in high risk investments. in addition to its base management fee, our manager is entitled to receive an incentive fee based entirely upon our achievement of targeted levels of funds from operations. in evaluating investments and other management strategies, the opportunity to earn an incentive fee based on funds from operations may lead our manager to place undue emphasis on the maximization of funds from operations at the expense of other criteria, such as preservation of capital, in order to achieve a higher incentive fee. investments with higher yield potential generally are riskier or more speculative. this could result in increased risk to our investment portfolio. risks related to our businesswe have no operating history and may not be able to successfully operate our business or generate sufficient revenue to make or sustain distributions to stockholders. we were organized in september 2006 and have no operating history. the results of our operations depend on many factors, including the performance of the initial assets, the availability of opportunities for the 15 acquisition of additional assets, the level and volatility of interest rates, readily accessible short- and long-term financing, conditions in the financial markets and economy, and our ability to successfully operate our business and execute our investment strategy. we will face substantial competition in acquiring suitable investments, which could adversely impact the yields we receive on our new investments.we are dependent on our manager, who has no experience operating a reit. although our manager has been active in real estate operations and lending for many years, it has no experience operating a reit and operating a business in compliance with the numerous technical restrictions and limitations set forth in the internal revenue code or the investment company act applicable to reits. our managers and its employees lack of experience in managing a portfolio of assets under reit and investment company act constraints may hinder their ability to achieve our investment objective. in addition, maintaining our reit qualification and complying with the investment company act exemptions limit the types of investments we are able to make. we can offer no assurance that our manager will be successful at all or as successful as in its previous endeavors. our board of directors will not review or approve individual investments unless the investment is outside our conflicts of interest policy or investment guidelines.we are dependent upon our manager and its key personnel for our success and may not find a suitable replacement if the management agreement is terminated or such key personnel are no longer available to us and, if the management agreement is not renewed without cause or if we elect not to renew the management agreement as a result of our managers underperformance, we will be prohibited from soliciting any officers or employees of our manager for a period of one year from the effective date of such termination. we will not have employees. our officers are employees of our manager. we do not have any separate facilities and are completely reliant on our manager, which has significant discretion as to the implementation of our operating policies and strategies. we depend on the diligence, skill and network of business contacts of our manager. our executive officers and our manager will evaluate, negotiate, structure, close, service and monitor our investments. our continued success will depend on the continued service of key employees of our manager. the management agreement does not require our manager to dedicate specific personnel to fulfilling its obligations to us under the management agreement, or require personnel to dedicate a specific amount of time. the departure of any key employee of our manager, or of a significant number of the professionals of our manager, could have a material adverse effect on our performance. we are also subject to the risk that our manager will not renew the management agreement and that no suitable replacement will be found to manage us. after june30, 2009, the initial term of the management agreement, or upon the expiration of any automatic renewal term, our manager may elect not to renew the management agreement without cause, without penalty, on 180 days prior written notice to us. we can offer no assurance that our manager will remain our external manager, that we will be able to find an adequate replacement for our manager should our manager elect not to renew the management agreement, or that we will continue to have access to our managers principals and professionals or their information or deal flow. if we elect not to renew the management agreement without cause or as a result of our managers underperformance, we will be prohibited, without the consent of our manager, for a period of one year after the expiration of the management agreement from employing or otherwise retaining any employee of our manager or any affiliate, or at any time any person who has been in the employ of our manager or an affiliate at any time within the one year period immediately preceding the date on which such person commences employment with us.our manager will have broad discretion to invest funds and may make investments that ultimately produce investment returns which are substantially below expectations or that result in losses. our manager is authorized to follow very broad investment guidelines and has great latitude within those guidelines in determining the types of assets it may decide are proper investments for us. our board of directors will periodically review our investment guidelines and our investment portfolio. however, our board of directors will not review or approve each proposed investment. in addition, in conducting periodic reviews, the directors will rely primarily on information provided to them by our manager. furthermore, transactions entered into by our manager may be costly, difficult or impossible to unwind by the time they are reviewed by our board of 16 directors. our manager has great latitude within the broad parameters of our investment guidelines in determining the types of assets it may decide are proper investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business, operations and results.our failure to manage future growth effectively may have a material negative impact on our business, financial condition and results of operations. our ability to achieve our investment objective depends on our ability to grow, which depends, in turn, on the senior management team of our manager and its ability to identify and invest in assets that meet our investment criteria. accomplishing this result on a cost-effective basis is largely a function of our managers structuring of our investment process, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms. our ability to grow is also dependent upon our managers ability to successfully hire, train, supervise and manage its employees. we may not be able to manage growth effectively or to achieve growth at all. any failure to manage our future growth effectively could have a material negative impact on our business, financial condition and results of operations.failure to procure adequate capital and funding would negatively impact our results and may, in turn, negatively affect the market price of shares of our common stock and our ability to make distributions to our stockholders. we depend upon the availability of adequate funding and capital for our operations. as a reit, we are required to distribute annually at least 90% of our reit taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders and are therefore not able to retain significant amounts of our earnings for new investments. the failure to secure acceptable financing could reduce our taxable income, as our investments would no longer generate the same level of net interest income due to the lack of funding or increase in funding costs. a reduction in our net income could reduce our liquidity and our ability to make distributions to our stockholders. we cannot assure you that any, or sufficient, funding or capital will be available to us in the future on terms that are acceptable to us. therefore, in the event that we cannot obtain sufficient funding on acceptable terms, there may be a negative impact on the market price of our common stock and our ability to make distributions.lenders may require us to enter into restrictive covenants relating to our operations. when we obtain financing, lenders could impose restrictions on us that would affect our ability to incur additional debt, our capability to make distributions to stockholders and our flexibility to determine our operating policies. loan documents we execute will contain negative covenants that may limit, among other things, our ability to repurchase stock, distribute more than a certain amount of our funds from operations, and employ leverage beyond certain amounts.if our manager ceases to be our manager pursuant to the management agreement, financial institutions providing any credit facilities we may have may not provide future financing to us. we are currently negotiating a warehouse facility with wachovia bank, n.a., an affiliate of one of our underwriters, which we expect to be in place upon consummation of this offering or shortly thereafter. we are also currently negotiating a warehouse facility with keybank national association, an affiliate of one of our underwriters. there is no assurance, however, that we will be able to close these facilities on terms favorable to us if at all. financial institutions that finance our investments pursuant to credit facilities and warehouse agreements may require that our manager remain our manager pursuant to the management agreement. if our manager ceases to be our manager, it may constitute an event of default and the financial institution providing the warehouse credit facility may have the right to terminate its facility and any obligation to advance funds to us to finance our future investments and/or to accelerate the repayment of amounts we have borrowed. if our manager ceases to be our manager for any reason and we are unable to obtain financing under these or replacement credit facilities, our growth may be limited. if we issue senior securities, we will be subject to restrictive covenants and limitations on our operating flexibility, which could adversely affect our ability to make distributions. if we decide to issue senior securities in the future, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. holders of senior securities may be granted specific rights, including the right to hold a perfected security interest in certain of our assets, the right to accelerate payments due under the indenture, rights to restrict dividend payments, and rights to require approval to sell assets. additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock. we, and indirectly our stockholders, will bear the cost of issuing and servicing such securities.the use of cdo financings with over-collateralization requirements may have a negative impact on our cash flow. we expect that the terms of cdos we may issue will generally provide that the principal amount of assets must exceed the principal balance of the related bonds by a certain amount, commonly referred to as over-collateralization. we anticipate that the cdo terms will provide that, if certain delinquencies and/or losses exceed specified levels, which we will establish based on the analysis by the rating agencies (or any financial guaranty insurer) of the characteristics of the assets collateralizing the bonds, the required level of over-collateralization may be increased or may be prevented from decreasing as would otherwise be permitted had losses or delinquencies not exceeded those levels. other tests (based on delinquency levels or other criteria) may restrict our ability to receive net income from assets collateralizing the obligations. we cannot assure you that the performance tests will be satisfied. in advance of completing negotiations with the rating agencies or other key transaction parties on our future cdo financings, we cannot assure you of the actual terms of the cdo delinquency tests, over-collateralization terms, cash flow release mechanisms or other significant factors regarding the calculation of net income to us. failure to obtain favorable terms with regard to these matters may materially and adversely affect the availability of net income to us. if our assets fail to perform as anticipated, our over-collateralization or other credit enhancement expense associated with our cdo financings will increase.we may be required to repurchase loans that we have sold or to indemnify holders of our cdos. if any of the loans we originate or acquire and sell or securitize do not comply with representations and warranties that we make about certain characteristics of the loans, the borrowers and the underlying properties, we may be required to repurchase those loans (including from a trust vehicle used to facilitate a structured financing of the assets through cdos) or replace them with substitute loans. in addition, in the case of loans that we have sold instead of retained, we may be required to indemnify persons for losses or expenses incurred as a result of a breach of a representation or warranty. repurchased loans typically require a significant allocation of working capital to be carried on our books, and our ability to borrow against such assets may be limited. any significant repurchases or indemnification payments could materially and adversely affect our financial condition and operating results.we may not be able to renew the total return swaps that we may enter into, which could adversely impact our leveraging strategy. in the future, we may leverage certain of our investments through the use of total return swaps. if we do, we may wish to renew many of the swaps, which are for specified terms, as they mature. however, there is a limited number of providers of such swaps, and there is no assurance the initial swap providers will choose to renew the swaps, and, if they do not renew, that we would be able to enter into new total return swaps with suitable replacement providers. providers may choose not to renew our total return swaps for a number of reasons, including: bullet increases in the providers cost of funding; insufficient volume of business with a particular provider; 18 our desire to invest in a type of swap that the provider does not view as economically attractive due to changes in interest rates or other market factors; or our inability to agree with a provider on terms.competition in acquiring desirable investments may limit their availability, which could, in turn, negatively affect our ability to make distributions to our stockholders. we will compete for investments with numerous public and private real estate investment vehicles, such as other reits, mortgage banks, pension funds, institutional investors and individuals. real estate loan assets are often obtained through a competitive bidding process. many of our competitors may have advantages over us and our manager. competition may result in higher prices for commercial mortgage loans and real estate related assets, lower yields and a narrower spread of yields over our borrowing costs. in addition, competition for desirable investments could delay the investment of our equity capital in desirable assets, which may, in turn, reduce earnings per share and may negatively affect our ability to maintain our dividend distribution. there can be no assurance that we will achieve investment results that will allow any specified level of cash distribution.we may incur borrowing costs related to any warehouse lines of credit and repurchase agreements we may obtain, which could harm our results of operations or financial condition. we intend to finance the acquisition of certain investments with warehouse lines of credit and repurchase agreements. in addition, we may engage in various types of securitizations in order to finance our loan originations. the amount of borrowings we intend to employ depends on, among other factors, the amount of our equity capital. our borrowing costs under any warehouse lines of credit and repurchase agreements we may obtain generally will be adjustable and will correspond to floating interest rates, such as libor or a treasury index, plus or minus a margin. the margins on these borrowings over or under interest rates may vary depending upon a number of factors, including, without limitation: the movement of interest rates; the availability of financing in the market; and the value and liquidity of our mortgage loans and real estate related assets. an increase in the interest rates of these borrowings could harm our results of operations and financial condition.to close transactions within a time frame that meets our borrowers needs, we may perform underwriting analyses in a very short period of time, which may result in credit decisions based on limited information. we may gain a competitive advantage by, from time to time, being able to analyze and close transactions within a very short period of time. our underwriting guidelines require a thorough analysis of many factors, including the underlying propertys financial performance and condition, geographic market assessment, experience and financial strength of the borrower and future prospects of the property within the market. if we make the decision to extend credit to a borrower prior to the completion of one or more of these analyses, we may fail to identify certain credit risks that we would otherwise have identified.we may be unable to generate sufficient revenue from operations to pay our operating expenses and to make distributions to our stockholders. as a reit, we are generally required to distribute at least 90% of our taxable income each year to our stockholders and we intend to pay quarterly dividends to our stockholders in amounts such that we distribute all or substantially all of our taxable income each year, subject to certain adjustments and to sufficient cash being available. however we have not established a minimum dividend payment level, and our ability to pay dividends may be adversely affected by the risk factors described in this prospectus. in the event of a downturn in our operating results and financial performance or unanticipated declines in the value of our asset portfolio, we may 19 be unable to pay quarterly dividends to our stockholders. the timing and amount of our dividends are in the sole discretion of our board of directors, and will depend upon, among other factors, our earnings, financial condition, maintenance of our reit qualification and other tax considerations and capital expenditure requirements, in each case as our board of directors may deem relevant from time to time. among the factors that could adversely affect our results of operations and impair our ability to pay dividends to our stockholders are: the profitability of the investment of the net proceeds of this offering; our ability to make profitable investments; defaults in our asset portfolio or decreases in the value of our portfolio; and the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates. a change in any one of these factors could affect our ability to pay dividends. if we are not able to comply with the restrictive covenants and financial ratios contained in our credit facilities, our ability to pay dividends to our stockholders may also be impaired. we cannot assure you that we will be able to pay dividends to our stockholders in the future or that the level of any dividends we pay will increase over time. in addition, dividends paid to stockholders are generally taxable to our stockholders as ordinary income, but a portion of our dividends may be designated by us as long-term capital gains to the extent they are attributable to capital gain income recognized by us, or may constitute a return of capital to the extent they exceed our earnings and profits as determined for tax purposes. a return of capital is not taxable, but it has the effect of reducing the basis of a stockholders investment in our common stock.our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests. our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from: actual receipt of an improper benefit or profit in money, property or services; or a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated. in addition, our charter permits us to agree to indemnify our present and former directors and officers for actions taken by them in those capacities to the maximum extent permitted by maryland law. our bylaws require us to indemnify each present or former director or officer, to the maximum extent permitted by maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. in addition, we may be obligated to fund the defense costs incurred by our directors and officers.compliance with our investment company act exemption imposes limits on our operations. we intend to conduct our operations so as not to become regulated as an investment company under the investment company act. we intend to qualify for an exemption from registration under section3(c)(5)(c) of the investment company act, which generally means that at least 55% of our portfolio must be comprised of qualifying real estate assets and at least another 25% of our portfolio must be comprised of additional qualifying real estate assets and real estate-related assets. to comply with these regulations, we may from time to time buy or originate whole mortgage loans and participations in whole mortgage loans, provided that we control the right to foreclose the mortgage securing the loan in the event of a default, and certain b notes and other qualifying assets. although we intend to monitor our portfolio periodically and prior to each acquisition, there can be no assurance that we will be able to maintain this exemption from registration. further, we may not be able to invest in sufficient qualifying real estate assets and/or real estate-related assets and future revisions of the investment 20 company act or further guidance from the staff of the sec may cause us to lose our exemption or force us to re-evaluate our portfolio and our business strategy. such changes may prevent us from operating our business successfully. we currently have two subsidiaries and in the future expect to operate all or more of our business through majority-owned or wholly-owned subsidiaries, including cdo subsidiaries. when we operate through subsidiaries, our subsidiaries will be subject to similar restrictions under the investment company act as described in this prospectus so that we do not come within the definition of an investment company under the investment company act. these restrictions also would limit the types of business in which we may engage, as described in this prospectus. a failure to satisfy these requirements could materially and adversely affect our business. as part of our managers obligations under the management agreement, our manager agreed to use commercially reasonable efforts to cooperate with our efforts to conduc | 1 |
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| RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. HISTORY OF SUSTAINED OPERATING LOSSES AND CONTINUATION OF SUCH LOSSES The Company has incurred substantial and increasing operating losses since inception in 1991. The Company's net loss for 1995, 1996 and the three months ended March 31, 1997 was $6.2 million, $16.0 million and $7.5 million, respectively. As of March 31, 1997, the Company had an accumulated deficit of $36.4 million. Operating losses to date have resulted primarily from expenses incurred in the development, marketing and operation of the Coinstar units, development and maintenance of the network, administrative and occupancy expenses at the Company's headquarters, and depreciation and amortization. The Company expects to continue to incur substantial and increasing operating losses and negative cash flow from operating and investing activities as it plans to significantly increase its installed base of Coinstar units. See "Management's Discussion and Analysis of Financial Condition and Results of Operations.LIMITED OPERATING HISTORY After several years of development, the Company commenced commercial deployment of Coinstar units in 1994 and placed approximately 86% of the installed base as of March 31, 1997 in service during 1996 and the three months ended March 31, 1997. Prospective investors, therefore, have limited historical financial information on which to base an evaluation of the Company's performance. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in an early stage of development, particularly companies in new or rapidly evolving markets. There can be no assurance that the Company will install a sufficient number of its Coinstar units or obtain sufficient market acceptance to allow the Company to achieve or sustain profitability, or generate sufficient cash flow to meet the Company's capital and operating expenses and debt service obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business.UNCERTAINTY OF FUTURE OPERATING RESULTS Substantially all of the Company's revenue has been, and the Company believes will continue to be, derived from the processing fees charged for the Company's coin processing service. Prior growth rates in the Company's revenue should not be considered indicative of future operating results. The timing and amount of future revenues will depend almost entirely on the Company's ability to obtain new agreements with supermarket chains and other potential retail distribution partners for the installation of Coinstar units, the successful deployment and operation of the Company's coin processing network, and customer utilization of the service. Future operating results will depend upon many factors, including the Company's success in deploying a substantial number of additional units, the consumer demand for the Company's coin processing service, the level of product and price competition, the Company's success in expanding its national network and managing the growth of such network, the ability of the Company to develop and market product enhancements, the timing of product enhancements, activities of and acquisitions by competitors, the ability to hire additional employees and the timing of such hiring and the ability to control costs. Fluctuations in the volume and value of coins processed and the rate of unit installations have caused and may continue to cause material fluctuations in the Company's operating results, particularly on a 7 quarterly basis. Quarterly revenue and operating results, therefore, depend on the volume and mix of coins processed and the rate of unit installations during the quarter, all of which are difficult to forecast. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing.FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The customer utilization of the Company's coin processing service varies substantially from unit to unit, making the Company's revenues difficult to forecast. Customer utilization is affected by the timing and success of promotions by the Company and its supermarket partners, age of the installed unit, adverse weather conditions and other factors, many of which are not in the Company's control. Based on its limited operating history, the Company believes that coin processing volumes are affected by seasonality; in particular the Company believes that on a relative basis coin processing volumes have been lower in the months of January, February, September and October. There can be no assurance, however, that such seasonal trends will continue. Any projections of future seasonality are inherently uncertain due to the Company's limited operating history, and due to the lack of comparable companies engaged in the coin processing business. As a result of these and other factors, revenue for any quarter is subject to significant variation, and the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Because the Company's operating expenses are based on anticipated revenue trends and because a large percentage of the Company's expenses are relatively fixed, revenue variability could cause significant variations in operating results from quarter to quarter and could result in significant losses. To the extent such expenses precede, or are not subsequently followed by, increased revenue, the Company's operating results would be materially adversely affected. Due to all of the foregoing factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. Fluctuations in operating results may also result in volatility in the price of the Company's Common Stock. See "Risk Factors -- Possible Termination of Retail Distribution Partner Agreements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing.SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT The Company had outstanding indebtedness as of March 31, 1997 of $72.2 million, which included $68.4 million of the Company's 13.0% Senior Subordinated Discount Notes due 2006 (the "Notes"). The Notes will accrete to $95.0 million by October 1999. The Company must begin paying cash interest on the Notes in April 2000. Beginning at that time, the Company will have debt service obligations of over $12.0 million per year until October 2006 when the principal amount of $95.0 million will be due. The Company's capital expenditures will increase significantly upon the continued expansion of the Coinstar network, and the Company expects that its operating cash flow will be insufficient to finance capital expenditures over the next several years. The ability of the Company to meet its debt service requirements will depend upon achieving significant and sustained growth in the Company's cash flow, which will be affected by its success in implementing its business strategy, prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. Accordingly, there can be no assurance as to whether or when the Company's operations will generate positive cash flow or become profitable or whether the Company will at any time have sufficient resources to meet its debt service obligations. If the Company is unable to generate sufficient cash flow to service its indebtedness, it will have to reduce or delay planned capital expenditures, sell assets, restructure or refinance its indebtedness or seek additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all, particularly in light of the Company's high levels of indebtedness. In addition, the degree to which the Company is leveraged could have significant consequences, including, but not limited to, the following: (i) the Company's ability to obtain additional financing in the future for 8 working capital, capital expenditures, product research and development, acquisitions, and other general corporate purposes may be materially limited or impaired, (ii) a substantial portion of the Company's cash flow from operations may need to be dedicated to the payment of principal and interest on its indebtedness and therefore not available to finance the Company's business and (iii) the Company's high degree of leverage may make it more vulnerable to economic downturns, may limit its ability to withstand competitive pressures and may reduce its flexibility in responding to changing business and economic conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.COMPETITION The Company believes that it is the first company to provide a widespread network of self-service coin processing machines that provide a convenient, reliable means for consumers to convert loose coins into cash. The Company has become aware of two direct competitors that operate self-service coin processing machines, both of which the Company believes operate an installed base of less than 50 units in certain regions of the United States. There can be no assurance, however, that such competitors have not or will not increase their installed base of units or expand their service nationwide. The Company also competes indirectly with manufacturers of machines and devices that enable consumers to count or sort coins themselves. The Company also competes or may compete directly or indirectly with banks and similar depository institutions for coin conversion customers. Currently, banks are the primary alternative available to consumers for converting coins into cash, and they generally do not charge a fee for accepting rolled coins. As the market for coin processing develops, banks and other businesses may decide to offer additional coin processing services, either as a customer service or on a self-service basis, and compete directly with the Company. Many of these potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, marketing and public relations resources than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to consumers and businesses. There can be no assurance, however, that the Company's competitors, or others will not succeed in developing technologies, products or services that are more effective, less costly or more widely used than those that have been or are being developed by the Company or that would render the Company's technologies or products obsolete or noncompetitive. There can be no assurance that the Company will be able to compete effectively with current or future competitors or that the competitive pressures faced by the Company will not have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. See "Business -- Competition.DEPENDENCE ON CONTINUED MARKET ACCEPTANCE BY CONSUMERS AND RETAIL DISTRIBUTION PARTNERS The Company is substantially dependent on continued market acceptance of its coin processing service by consumers and its retail distribution partners, which have been almost exclusively supermarket chains. The self-service coin processing market is relatively new and evolving; accordingly, it is difficult to predict the future growth rate and size of this market. There can be no assurance that the Company will be successful in achieving the large-scale adoption of its coin processing service. While the Company's existing installed base of Coinstar units has been well received by both supermarket partners and customers to date, there can be no assurance that the operating results of the installed units will continue to be favorable or past results will be indicative of future market acceptance of the Company's service. The Company believes that market acceptance of the Coinstar unit is dependent on the consumer's perception that the units are convenient, easy to use and reliable. Even if the Company is successful in promoting awareness of the Coinstar unit among consumers, there can be no assurance that such consumers will utilize the Coinstar units in sufficient volume to make the Company profitable. In addition, market acceptance and ongoing use of the Coinstar service may be adversely affected by the increasing use of alternatives to coin 9 and currency transactions such as credit and debit cards, checks, wire transfers, smart cards and other forms of electronic payment. See "Business -- Sales and Marketing." Market acceptance of the Coinstar units is also dependent on the willingness of potential retail distribution partners to have the units installed in their stores. The Company believes that market acceptance by potential retail distribution partners will be dependent on its ability to demonstrate the utility of the Coinstar unit as a customer service and as a means to provide other tangible benefits, including increased customer traffic and the promotion of store sales. There can be no assurance, however, that potential retail distribution partners will be willing to place Coinstar units in their stores or that, once installed, Coinstar units will obtain market acceptance from consumers. Market acceptance and the Company's revenues may also be affected by the availability and success of coin processing services offered by competitors. In the event the Company's service does not achieve market acceptance or does so less rapidly than expected or the Company's contracts with one or more of its retail distribution partners is terminated, the Company and its results of operations, including its ability to achieve sufficient cash flow to service its indebtedness and achieve profitability, will be materially adversely affected. Moreover, the Company intends to deploy the Coinstar units in banks, convenience stores and mass merchants and is exploring opportunities for deployment in the international market. However, the Company has not yet entered such markets and there can be no assurance that, if entered, deployment in such markets would be successful. See "Risk Factors -- Possible Termination of Retail Distribution Partner Agreements" and "Business.POSSIBLE TERMINATION OF RETAIL DISTRIBUTION PARTNER AGREEMENTS The Company is substantially dependent upon its ability to enter into agreements with retail distribution partners for the installation of its Coinstar units. In addition, the Company generally has separate agreements with each of its retail distribution partners, providing for the Company's exclusive right to provide coin processing services in their retail locations. These contracts generally have terms ranging from two to three years and are generally terminable by either party with advance notice of at least 90 days. In addition, Coinstar units in service in several supermarket chains account for a significant portion of the Company's revenue. In 1996 and the first quarter ended March 31, 1997, Coinstar units in service in three supermarket chains accounted for approximately 36.2% and 30.3%, respectively, of the Company's revenue for such periods. The units in service in two of these chains, Ralphs Grocery Co. ("Ralphs") and Quality Food Centers, Inc., including Hughes Markets, Inc., its subsidiary, ("QFC-Hughes"), accounted for approximately 12.7% and 14.9%, respectively, of the Company's 1996 revenue and 12.2% and 9.1%, respectively, of the Company's revenue in the first quarter ended March 31, 1997. The termination of any one or more of the Company's contracts with its retail distribution partners could have a material adverse effect on the Company's business, financial condition, results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. See "Business -- Sales and Marketing.MANAGEMENT OF GROWTH The Company has experienced rapid growth and intends to continue to aggressively expand its operations. The growth in the size and scale of the Company's business has placed and is expected to continue to place significant demands on its operational, administrative and financial personnel and operating systems. Additional planned expansion by the Company may further strain management and other resources. The Company's ability to manage growth effectively will depend on its ability to improve its operating systems, to expand, train and manage its employee base and to develop additional manufacturing and service capacity. In particular, the Company will be required to rapidly expand its operating systems and processes in order to support the projected installations of Coinstar units and the potential addition of value-added services. Such expansion will require improvements to both hardware and software and the hiring and training of additional software engineers. In addition, the Company will be required to 10 establish relationships with additional third-party service providers. These demands, and others, will require the addition of new management personnel and the development of additional expertise by existing management personnel. There can be no assurance that the Company will be able to effectively manage the expansion of its operations, or that the Company's systems, procedures or controls will be adequate to support the Company's operations or that Company management will be able to achieve and manage the rapid roll-out currently projected. If the Company is unable to manage growth effectively, the Company's business, financial condition and results of operations and its ability to achieve sufficient cash flow to service its indebtedness will be materially adversely affected. See "Business.DEPENDENCE ON A SINGLE SERVICE The Company has and expects for the foreseeable future to derive substantially all of its revenues from the operation of Coinstar units. Accordingly, market acceptance of the Company's coin processing service is critical to the Company's future success. Since there is only a limited existing market for the Company's coin processing service, there can be no assurance that an acceptable level of demand will be achieved or sustained. If sufficient demand for the Company's coin processing service does not develop due to lack of market acceptance, technological change, competition or other factors, the Company's business, financial condition and results of operations and its ability to achieve sufficient cash flow to service its indebtedness will be materially adversely affected. See "Risk Factors -- Dependence on Continued Market Acceptance By Consumers and Retail Distribution Partners" and "Business -- Sales and Marketing.EXPOSURE TO COMPONENT SHORTAGES FROM SINGLE SOURCE SUPPLIER The Company currently purchases the coin counter component of the Coinstar unit from a single manufacturer, Scan Coin AB, pursuant to an agreement that may be terminated by either party with six months notice at any time on or after June 30, 1998. The Company has entered into a non-binding letter of intent with Scan Coin AB for a new agreement, although no assurance can be given that the parties will enter into a new agreement. Currently, no other manufacturer produces a coin counter capable of being used in the Coinstar units without extensive enhancements and modifications. No assurance can be given that Scan Coin AB will be able or willing to supply coin counter components to the Company in the future. The Company believes it would require up to 12 months to source and make necessary modifications to an alternative coin counter component. Moreover, it could take several additional months for any such alternative supplier to meet the Company's required volume levels. Accordingly, any cessation, slow-down or disruption in the Company's current supply of coin counter components would have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. Although the Company believes alternative suppliers are available, there can be no assurance that the Company would be able to locate an alternate supplier on a timely or cost-efficient basis, if at all, and make the necessary modifications and enhancements to the design of the Coinstar unit to utilize such replacement, both of which, in the event of their nonoccurrence, would materially impair its ability to have Coinstar units manufactured. A prolonged inability to obtain certain components could have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness, particularly as the Company increases its manufacturing requirements to support its nationwide deployment. See "Business -- Manufacturing and Supply.RELIANCE ON THIRD-PARTY MANUFACTURER AND SERVICE PROVIDERS The Company does not conduct manufacturing operations and is dependent and will continue to be dependent on outside parties for the manufacture of the Coinstar unit and its key components. While Coinstar intends to significantly expand its installed base, such expansion may be constrained by the manufacturing capacity of its third-party manufacturers and suppliers. Although the Company expects that its current contract manufacturer, SeaMed Corporation ("SeaMed") will be able to produce sufficient 11 units to meet projected demand, there can be no assurance that SeaMed or other manufacturers will be able to meet the Company's manufacturing needs in a satisfactory and timely manner. In the event of an unanticipated increase in demand for Coinstar unit installations by retail distribution partners, the Company may be unable to meet such demand due to manufacturing constraints. Although the Company has a contract with SeaMed, it does not have a long-term obligation to continue the manufacture of the Coinstar unit or its components. Further, SeaMed is principally engaged in the manufacture of electronic medical instruments for medical technology companies. The Company believes that it is SeaMed's only material non-medical customer. As such, the Company faces an increased risk that SeaMed may choose to focus exclusively on manufacturing its medical products and cease making the Company's products. Should SeaMed cease providing services, the Company would be required to locate and qualify additional suppliers. There can be no assurance that the Company would be able to locate alternate manufacturers on a timely basis. The Company's reliance on third-party manufacturers involves a number of additional risks, including the absence of guaranteed capacity and reduced control over delivery schedules, quality assurance, production yields and costs. There can be no assurance that the manufacturing capability of such third-party manufacturers will successfully address the Company's needs. In the event the Company is unable to retain such manufacturing on commercially reasonable terms, its business, financial condition and results of operation and its ability to achieve sufficient cash flow to service its indebtedness will be materially adversely affected. See "Business -- Manufacturing and Supply." The Company relies on third-party service providers for substantial support and service efforts that the Company currently does not provide directly. In particular, the Company contracts with armored carriers to arrange for the pick-up, processing and deposit of coins. The Company generally contracts with one armored carrier to service a particular region. Many of these carriers do not have long-standing relationships with the Company and these contracts generally can be terminated by either party with advance notice ranging from 30 to 90 days. In the past, the Company has experienced a sudden disruption in service from an armored carrier company. The Company does not currently have nor does it expect to have in the foreseeable future the internal capability to provide back up service in the event of sudden disruption in service from an armored carrier company. Any failure by the Company to maintain its existing relationships or to establish new relationships on a timely basis or on acceptable terms would have a material adverse effect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. Moreover, as with any business that handles large volumes of cash, the Company is susceptible to theft, counterfeit and other forms of fraud, including security breaches of the Company's computing system that performs important accounting functions. There can be no assurance that the Company will be successful in developing product enhancements and new services to thwart such attempts. See "Business -- The Coinstar System.RISK OF DEFECTS IN OPERATING SYSTEMS The Company collects financial and operating data and monitors unit performance through a wide-area communications network connecting each of the Coinstar units with a central computing system located at the Company's headquarters. This information is used to track the flow of coins, verify coin counts and schedule and dispatch unit service. The operation of the Coinstar units depends on sophisticated software, computing systems and communications services that may contain undetected errors or are subject to failures. These errors and failures may arise particularly when new services or service enhancements are added or when the volume of services provided increases. Although each unit is designed to store all data collected, helping to ensure critical data is not lost due to an operating systems failure, the inability of the Company to collect the data from its units could lead to a delay in processing coins and crediting the accounts of its distribution partners for vouchers already redeemed. Further, there can be no assurance that the design of the operating systems to prevent the loss of data will operate as intended and any loss of or delay in collecting coin processing data would materially and adversely effect the Company's operations. In addition, the Company has in the past experienced limited delays and disruptions resulting from upgrading or improving its operating systems. Although such disruptions have not had a material 12 effect on the Company's operations, there can be no assurance that future upgrades or improvements will not result in delays or disruptions that would have a material adverse impact on the Company's operations. In particular, the Company is currently planning some significant improvements in its operating platform in order to support its projected expansion of the installed base of Coinstar units and the potential addition of value-added services. While the Company is taking steps to ensure that the potential adverse impact of such improvements on the Company's operations is minimized, there can be no assurance that the platform will be able to handle the increased volume of services expected from the continued expansion of the Company's network and the potential addition of value-added services or that the improvements will occur on a timely basis so as not to disrupt such continued expansion and potential addition of value-added services. In addition, the communications network on which the Company relies is not owned by the Company and is subject to service interruptions. Further, while the Company has taken significant steps to protect the security of its network, any breach of such security whether intentional or from a computer virus could have a material adverse impact on the Company. Any service disruptions, either due to errors or delays in the Company's software or computing systems or interruptions or breaches in the communications network, or security breaches of the system, could have a material adverse affect on the Company's business, financial condition and results of operations and on its ability to achieve sufficient cash flow to service its indebtedness. See "Business -- The Coinstar System.DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL The Company's performance is substantially dependent on the performance of its executive officers and key employees and its long term success will depend on its ability to recruit, retain and motivate highly skilled personnel. Jens H. Molbak, President and Chief Executive Officer, Rod W. Brooks, Vice President of Sales and Marketing, Aaron R. Finch, Vice President of Operations, and Daniel A. Gerrity, Vice President and Chief Technical Officer, have been primarily responsible for the development and expansion of the Company's business. The Company recently hired Kirk A. Collamer as Vice President and Chief Financial Officer. All of the Company's executive officers and employees are employed on an at-will basis. The loss of the services of any of these executive officers or other key employees or the inability to attract and retain necessary technical and managerial personnel could have a material adverse effect upon the Company's business, financial condition and results of operation and on its ability to achieve sufficient cash flow to service its indebtedness. Presently, the Company maintains a "key man" life insurance policy on Mr. Molbak in the amount of $2.0 million. See "Management.UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS The Company's future success depends, in part, on its ability to protect its intellectual property and maintain the proprietary nature of its technology through a combination of patents, licenses and other intellectual property arrangements, without infringing the proprietary rights of third parties. In October 1996 and April 1997, the Company was issued United States patents relating to removing debris from coins processed in a self-service environment and other aspects of self-service coin processing. These patents will expire in October 2013 and April 2014, respectively. Sufficient debris removal is important to reducing clogging and malfunctioning. Reducing these problems and the associated downtime improves unit availability for customer use and reduces the amount of time that Company or retail partner personnel must spend attending to the unit, both of which are important features of operating in a self-service environment. No assurance can be given that any patents from any pending patent applications or from any future patent applications will be issued, that any of the Company's patents will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights held by the Company. Moreover, there can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection to the Company. Despite the Company's efforts to safeguard and maintain its proprietary rights, there can be no assurance that the Company will be successful in doing so or that the Company's competitors will not independently develop or patent technologies that are substantially equivalent or superior to the Company's technologies. On June 18, 1997, the Company filed 13 in the United States District Court, Northern District of California against CoinBank Automated Systems, Inc. ("CoinBank"), one of its competitors, a complaint for infringement of one of the Company's United States patents (the "Patent Infringement Claim"). Coin | 1 | < 0.1% | |
| RISK FACTORS You should carefully consider the following factors and other information in this prospectus before deciding to invest in shares of our common stock. RISKS RELATING TO OUR BUSINESS: IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE OUR GROWTH, OUR PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED Our strategy is designed to enhance profitability by increasing sales in existing stores and generating sales in new stores. However, we must successfully manage our growth to realize this strategy. Our growth will be adversely affected if we are unable to: - identify suitable markets and sites for new stores - negotiate leases on acceptable terms - maintain levels of service that are expected by customers - provide a diverse inventory of bridal gowns and flower girl, bridesmaid, mothers-of-the-bride and -groom and other special occasion dresses, accessories and other product offerings in attractive styles - avoid reducing sales and profitability at existing stores when opening new stores in the same region or market area - offer prices that appeal to a broad range of consumers - manage inventory on an effective basis - deliver products on a timely basis - test new product offerings on an effective basis - hire, train and retain competent managers and personnel capable of providing high levels of customer service - improve, upgrade and expand our infrastructure to accommodate our growth - expand our distribution facility or add additional distribution facilities, as necessary Our profitability will be materially adversely affected if we are unable to successfully manage our growth.IF OUR MANAGEMENT INFORMATION SYSTEMS ARE DISRUPTED OR WE ARE NOT ABLE TO EFFECTIVELY UPGRADE AND EXPAND OUR MANAGEMENT INFORMATION SYSTEMS, OUR PROFITABILITY, BUSINESS OPERATIONS AND EXPANSION WILL BE ADVERSELY AFFECTED We depend on management information systems for all major aspects of our business. We will be materially adversely affected if our management information systems are disrupted or we are unable to improve, upgrade and expand our systems on an effective basis. Our expansion strategy may be adversely affected if we are not able to successfully expand our current hardware and network infrastructure, including the development of a communications infrastructure and the creation of data warehouses for store, marketing and customer information to improve controls and enhance sales and operational capabilities. We cannot assure you that our planned expansion or upgrades will be completed on a timely basis and successfully. See "Business--Management Information Systems."IF WE ARE NOT ABLE TO ANTICIPATE AND RESPOND TO CONSUMER DEMAND, WE WILL BE COMPELLED TO REDUCE PRICES AND MAY BE LEFT WITH EXCESS INVENTORY, AND THIS WILL MATERIALLY ADVERSELY AFFECT OUR SALES AND PROFITABILITY Our success will depend on our ability to anticipate and respond to consumer demand. We must identify and respond to changing consumer preferences with respect to bridal gowns and related bridal wear, accessories and our other product offerings. Fashion trends can be volatile. This is particularly true for bridesmaid and special occasion dresses. Our success depends on our ability to anticipate and effectively respond to these trends. If we do not provide merchandise that is desired by a sufficient number 8 9 of customers, we will be compelled to reduce prices and we may be left with excess inventory. Our sales and profitability will be materially adversely affected if we do not anticipate and effectively respond to customer demands.IF OUR ASIAN MANUFACTURERS ARE NOT ABLE TO PROVIDE US WITH SUFFICIENT MERCHANDISE TO MEET CUSTOMER DEMAND OR IF OUR IMPORTS ARE DISRUPTED, OUR SALES AND PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED Substantially all of our bridal gowns and flower girl dresses are manufactured in Asia. Substantially all of our other product offerings are currently manufactured domestically. We may in the future seek to manufacture a portion of this apparel internationally. Our sales and profitability could be materially adversely affected by our reliance on international manufacturing. Some of the risks in manufacturing overseas include: - changes in laws and regulations - compliance with labor laws and ethical standards - tariffs, quotas and other trade barriers - work stoppages - political and financial instability - fluctuations in currency exchange rates - increases in freight costs Virtually all of our bridal gowns are manufactured in China. There have been a number of recent trade disputes between China and the United States during which the Unites States has threatened to impose punitive tariffs and duties on products imported from China and to withdraw China's "most favored nation" trade status. Since a substantial portion of our total revenues is derived from the sale of bridal gowns, we are particularly vulnerable to the risk of loss of the most favored nation status for China, changes in the current tariff or duty structures or the adoption by the United States of other trade policies or sanctions adverse to China. In addition, the violation of labor laws by an independent manufacturer, or the divergence of a manufacturer's labor practices from those generally accepted as ethical in the United States, could have a material adverse effect on our image and reputation and as a result, adversely effect our sales and profitability. We cannot control the actions of our manufacturers and we cannot assure you that they will conduct their business using ethical labor practices. Furthermore, our import operations are subject to constraints imposed by bilateral textile agreements between the United States and a number of foreign countries. These agreements and other applicable treaties impose quotas on the amounts and types of merchandise which may be imported into the United States from these countries. These agreements and other applicable treaties also allow the United States to impose restraints at any time on the importation of categories of merchandise that, under the terms of the agreements, are not currently subject to specified limits. Our sales and profitability may be materially adversely affected if the United States or the countries in which our products are produced impose new quotas, duties, tariffs or other restrictions, or adversely adjust the prevailing quota, duty or tariff levels.WE RELY ON OUR JOINT VENTURE PARTNER TO INSURE THE QUALITY OF IMPORTED GOODS, AND OUR QUALITY CONTROL COULD BE NEGATIVELY AFFECTED IF OUR JOINT VENTURE PARTNER DOES NOT PERFORM ACCEPTABLY We depend on our Hong Kong based joint venture to handle our relationships with international manufacturers of our bridal wear. The quality of our product may be materially adversely affected if our joint venture partner does not perform its responsibilities on an acceptable basis or terminates our relationship and we are unable to replace our joint venture partner on a prompt basis. See note 5 to our consolidated financial statements. This joint venture is equally owned by us and one of our shareholders, Addwood Limited. We handle negotiations with the manufacturers with respect to basic economic terms 9 10 and product design. We depend on our joint venture partner to identify suitable manufacturers and insure that our manufacturers are meeting design specifications, adhering to shipping requirements and complying with our business standards.IF OUR MANUFACTURERS, MANY OF WHOM HAVE LIMITED RESOURCES, ARE UNABLE TO SUPPORT THE CONTINUED EXPANSION OF OUR BUSINESS, OUR SALES AND PROFITABILITY WILL BE MATERIALLY ADVERSELY AFFECTED Many of the third parties we use to manufacture our apparel have limited resources, production capabilities and operating histories. These manufacturers may be unable to support the continued expansion of our business. Our relationships with our manufacturers are not on a contractual basis and do not assure adequate supply or quality or acceptable pricing on a long-term basis. A manufacturer could discontinue selling to us at any time. Our sales and profitability may be materially adversely affected if we are unable to promptly replace a manufacturer who is unwilling or unable to satisfy our requirements.IF WE ARE NOT ABLE TO MAINTAIN OUR COMPARABLE STORE SALES GROWTH OR PREVENT FLUCTUATIONS IN COMPARABLE STORE SALES, OUR PROFITABILITY MAY BE MATERIALLY ADVERSELY AFFECTED Our comparable store sales have fluctuated significantly in the past. Comparable store sales will continue to fluctuate. Comparable store sales may be affected by many factors, including: - competition and economic conditions - fashion trends - weather conditions - new store openings in existing markets - procurement and management of merchandise inventory - customer response to new and existing styles - store relocations We are not likely to maintain comparable store sales growth at our current levels. Our profitability may be materially adversely affected by declines and fluctuations in our comparable store sales.IF OUR FINANCIAL RESULTS DO NOT MEET EXPECTATIONS AS A RESULT OF FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS, THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO DECLINE Our financial results may substantially fluctuate during any reporting period due to a number of factors. Historical trends indicate that our sales are typically highest from January through April and lowest from October through December. Our financial results may also fluctuate as a result of: - performance of new and existing stores - pre-opening expenditures for new stores - the timing of new store openings - the timing of holidays - competition and economic conditions - fashion trends - weather conditions - procurement and management of merchandise inventory - customer response to new and existing styles 10 11 Our expenditures for inventory, personnel and other pre-opening items for new stores may adversely affect period-to-period financial results. New stores may fail to generate sales as promptly as planned. New stores may also depress sales in our other stores that are located in the same regions or market areas. Our financial results may not meet the expectations of analysts and investors. The market price of our common stock is likely to decline when we do not meet these expectations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results and Seasonality."IF ADDITIONAL FINANCING IS NOT AVAILABLE, WE MAY BE UNABLE TO RESPOND TO COMPETITIVE PRESSURES OR UNANTICIPATED REQUIREMENTS Our business may be adversely affected if the unavailability of additional financing prevents us from responding to competitive pressures or unanticipated requirements. We may need additional financing if we accelerate our expansion program or our operating results decline. Additional funds may also be necessary to respond to competitive pressures or unanticipated requirements. Additional financing may not be available on satisfactory terms or at all. Any additional equity financing may cause investors to experience dilution. Any debt financing may result in restrictions on our spending or payment of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."IF WE ARE NOT ABLE TO RETAIN OR REPLACE OUR KEY PERSONNEL, OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED Our success will depend on the continued employment of our executive management team after this offering. If one or more members of our management team do not continue in their present positions, our business could be materially adversely affected. Steven H. Erlbaum, our Chairman and Chief Executive Officer, will resign from his position as Chief Executive Officer upon the closing of this offering. Robert D. Huth, our President and Chief Operating Officer, will also become our Chief Executive Officer upon the closing of this offering. Although Mr. Huth has been primarily responsible for running our day-to-day operations since joining us in 1995, we will be materially adversely affected if Mr. Huth is unable to assume these added responsibilities on a timely and effective basis. See "Management -- Executive Officers and Directors." We have employment agreements with Robert D. Huth and with Philip Youtie that will become effective upon completion of this offering. Mr. Huth's employment agreement will provide for a three year term. Mr. Youtie's employment agreement will provide for a two year term. In addition, effective following completion of this offering, Steven H. Erlbaum will become a consultant to us. We will have a three year consulting agreement with Steven H. Erlbaum. We have no employment or consulting agreement with any of our other employees or consultants. See "Management -- Employment and Consulting Agreements." Our expansion strategy will depend on our ability to hire capable managers and other store level personnel. The need for such personnel is particularly important because purchasers of bridal wear typically expect a high level of service and attentiveness. We will be materially adversely affected if we do not hire capable store managers and other store level personnel.IF OUR SYSTEMS ARE NOT YEAR 2000 COMPLIANT, WE MAY NOT BE ABLE TO CONDUCT NORMAL BUSINESS ACTIVITIES Historically, many computerized systems have used two digits rather than four to define the applicable year. Computer equipment and software and devices with imbedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations. This problem is generally referred to as the "Year 2000 issue." As a result of the Year 2000 issue, possible adverse consequences to our business include the inability to engage in normal business activities resulting from one or more of the following: - loss of communications links with one or more of our store locations 11 12 - disruptions in the movement of inventory to and from our distribution center and between store locations - failure of our inventory management systems - the inability to process transactions with customers - the inability to send purchase orders - the inability to fulfill customer orders in a timely fashion - failure of our vendors to provide us with suitable products - failure of our credit card processors to correctly process customer transactions - failure of our telecommunications service Not all of our information systems are Year 2000 compliant and not all of the third parties with whom we conduct our business have indicated that their information systems are Year 2000 compliant. If we and these third parties do not effectively change, or replace, our management information systems to make them Year 2000 compliant, our business will be materially adversely affected. We discuss the impact that the Year 2000 issue may have on our business, our expected costs to address our Year 2000 issues and our contingency plans in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. RISKS RELATING TO OUR INDUSTRY:A DETERIORATION OF ECONOMIC CONDITIONS COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS, SALES AND PROFITABILITY Our business, sales and profitability could be materially adversely affected by unfavorable economic conditions. Purchases of bridal wear and accessories may decline during recessionary periods. Prices that consumers may be willing to pay for bridal wear and accessories may be lower during times of economic duress. Our business, sales and profitability will likely be materially adversely affected by a deterioration in general economic conditions.IF WE ARE UNABLE TO RESPOND TO COMPETITION IN THE BRIDAL WEAR BUSINESS, OUR SALES AND PROFITABILITY MAY BE ADVERSELY AFFECTED The retail bridal wear business is highly competitive. We compete with local stores, regional chains and bridal warehouses that may have an established following in a community. We also compete with department stores that may also sell through catalogs and that have substantially greater financial and other resources. Specialty stores and a larger number of department stores provide additional competition in the sale of bridesmaid and special occasion dresses. Many retailers of other products that follow a growth strategy similar to ours rely on large selections and comparatively low prices to compete. However, the purchase of bridal wear is a very personal and emotional decision. We must provide a high level of service to compete effectively. Our business, sales and profitability will be materially adversely affected if we do not compete successfully. See "Business--Competition in the Bridal Industry." RISKS RELATING TO THIS OFFERING:BECAUSE A SMALL NUMBER OF SHAREHOLDERS MAY CONTROL ALL MAJOR CORPORATE DECISIONS DUE TO SIGNIFICANT OWNERSHIP CONCENTRATION OF OUR COMMON STOCK, OUR OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE ANY OF THESE CORPORATE DECISIONS Our major shareholders will have the power to elect our board of directors and approve actions requiring the approval of the majority of our shareholders if they decide to act together. Upon the consummation of this offering, Steven H. Erlbaum, Michael C. Erlbaum, Gary E. Erlbaum, Philip Youtie, 12 13 and Steven J. Sidewater, together with members of their immediate family, trusts for the benefit of members of their immediate family, and family partnerships in which members of their immediate family are partners, will own 8.8%, 2.3%, 6.6%, 6.2% and 3.3%, respectively, of our outstanding common stock. The Clipper Group partnership will own 24.9% of our outstanding common stock. These shareholders will own 52.1% in the aggregate. Steven, Michael and Gary Erlbaum are brothers and directors. The interests of these significant shareholders could conflict with the interests of our other shareholders.SINCE OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED, WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK, OR WHETHER YOU WILL BE ABLE TO SELL YOUR STOCK There has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price was determined by negotiations between representatives of the underwriters, the selling shareholders and us and may not be indicative of prices that will prevail in the trading market.ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A SALE OF DAVID'S BRIDAL, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK We are a Florida corporation. There are anti-takeover provisions of Florida law that could make it more difficult for a third party to acquire control of our company, even if such a change in control would be beneficial to our shareholders. Our articles of incorporation divide our board into three classes and provide that our board of directors may issue preferred stock without shareholder approval. The existence of a classified board or issuance of preferred stock could make it more difficult for a third party to acquire our company.IF OUR SHAREHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, INCLUDING SHARES ISSUED UPON THE EXERCISE OF OUTSTANDING OPTIONS, IN THE PUBLIC MARKET FOLLOWING THIS OFFERING, THEN THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE Restrictions under the securities laws and lock-up agreements signed by several of our significant shareholders limit the number of shares of common stock available for sale in the public market. Effective upon completion of this offering, the holders of 11,041,827 shares of common stock and options exercisable into an aggregate of 729,800 shares of common stock have agreed, subject to some exceptions, not to sell any such securities for 180 days after this offering without the prior written consent of Donaldson, Lufkin and Jenrette Securities Corporation. Following completion of the offering, holders of 11,041,827 shares of common stock will have demand or piggy-back registration rights. The demand registration rights may only be exercised by The Clipper Group, but all holders of registration rights are permitted to include shares in the demand offering on the same basis as The Clipper Group. The exercise of such rights could adversely affect the market price of our common stock. We plan to file a registration statement to register all shares of common stock under our stock option plan. After such registration statement is effective, shares issued upon exercise of stock options will be eligible for resale in the public market without restriction. 13 | 1 | < 0.1% | |
| risk factors an investment in our common stock involves a number of risks. before making an investment decision, you should carefully consider all of the risks described below and the other information contained in this prospectus. if any of the risks discussed in this prospectus actually occur, our business, financial condition, liquidity and results of operations could be materially adversely affected. if this were to occur, the value of our common stock could decline and you may lose all or part of your investment. risks related to conflicts of interest and our relationship with our manager the management agreement was not negotiated on an arms-length basis and the terms, including fees payable, may not be as favorable to us as if it was negotiated with an unaffiliated third party. the management agreement was negotiated between related parties, and we did not have the benefit of arms-length negotiations of the type normally conducted with an unaffiliated third party and the terms, including fees payable, may not be as favorable to us. we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain our ongoing relationship with our manager.the contribution agreement for the initial assets was not negotiated on an arms-length basis and we did not receive independent appraisals of the initial assets to be contributed upon completion of this offering and the terms of the contribution agreement, including the consideration paid by us in exchange for the initial assets, may not be as favorable to us as if it was negotiated with an unaffiliated third party. the contribution agreement was negotiated between related parties, and we did not have the benefit of arms-length negotiations of the type normally conducted with an unaffiliated third party and the terms, including the terms of the contributed assets, may not be as favorable to us. we have not obtained any independent third-party appraisals of the assets to be contributed to us upon the completion of this offering. these assets will be contributed to us by our manager, and, in exchange, we will agree to issue our manager cash proceeds from this offering and shares of our common stock. as a result, the consideration to be paid by us in exchange for the contribution of the assets upon the completion of this offering may exceed the fair market value of these assets. in addition, we may choose not to enforce, or to enforce less vigorously, our rights under the contribution agreement because of our desire to maintain our ongoing relationship with our manager.our manager will source primarily all of our investments and we will also participate in investments in which our manager and its affiliates are also participating, which could result in conflicts of interest. our manager will source primarily all of our investments and we will also participate in investments in which our manager and its affiliates are also participating. certain of our investments may be subordinate to investments made by our manager in the same issuer or project. transactions originated by, or in which we co-invest or participate with, our manager are not and will not be the result of arms-length negotiations and involve conflicts between our interests and the interests of our manager in obtaining favorable terms and conditions. although we have adopted a conflicts of interest policy to specifically address some of the conflicts relating to our investments, which is described under our manager and management agreementconflicts of interest policies, there is no assurance that this policy will be adequate to address all of the conflicts that may arise. in each case, some of the same officers will be determining the price and terms for the investments for both us and our manager and there can be no assurance that the procedural protections, such as obtaining market prices or other reliable indicators of fair market value or appointing a third party servicer in the event of a loans default, will be sufficient to assure that the consideration we pay for these investments will not exceed their fair market value and that we would not receive more advantageous terms for an investment had we negotiated the purchase with an independent third party. in addition, since our managers officers and employees are also responsible for providing the same services for our managers portfolio of investments, they may not devote sufficient time to the management of our business operations. our interests in such investments may conflict with the interests of such other vehicles or accounts in related investments in the event of a default or restructuring of the investment. we may compete with existing and future investment vehicles for access to our manager, which may reduce investment opportunities available to us. in the future, our manager may sponsor separate investment vehicles with investment focuses that overlap with our investment focus. under the management agreement, we have the right to terminate the agreement for cause if our manager raises, sponsors, forms or advises any new investment fund, company or vehicle, including any reit, that invests primarily in commercial mortgage loans or other commercial real estate loans, such as mezzanine loans (but specifically excluding cmbs and other similar pass through securities) in the united states. however, we may choose to not enforce our right to terminate the management agreement. accordingly, we may compete for access to the benefits that we expect our relationship with our manager to provide and for the time of their investment professionals to carry out and facilitate our investment activities. we may make investments that are senior or junior to participations in, or have rights and interests different from or adverse to, the investments made by other vehicles or accounts managed by our manager. our interests in such investments may conflict with the interests of such other vehicles or accounts in related investments at the time of origination or in the event of a default or restructuring of the investment.non-renewal of our management agreement would be difficult and costly. electing not to renew the management agreement without cause would be difficult and costly for us. with the consent of the majority of our independent directors, we may elect without cause not to renew our management agreement after june30, 2009, the initial term of the management agreement, or upon the expiration of any automatic renewal term, both upon 180 days prior written notice. if we elect not to renew the agreement because of a decision by the majority of our independent directors that the base management fee or the incentive fee is unfair, our manager has the right to renegotiate a mutually agreeable base management fee or incentive fee. if we elect not to renew the management agreement without cause, we are required to pay our manager a termination fee equal to two times the base management fee and the incentive fee, both as earned by our manager during the 12-month period immediately preceding the most recently completed calendar quarter prior to the date of expiration. if the management agreement is not renewed after march 31, 2011 by reason of underperformance of our manager (as defined in the management agreement) , we are required to pay our manager a termination fee equal to 1% of our equity at the effective time of nonrenewal. these provisions may increase the effective cost to us of electing not to renew the management agreement.our managers base management fee is payable regardless of our performance. our manager is entitled to receive a base management fee from us that is based on the amount of our equity (as defined in the management agreement), regardless of the performance of our portfolio. for example, we would pay our manager a base management fee for a specific period even if we experienced a net loss during the same period. our managers entitlement to substantial nonperformance-based compensation might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio. this in turn could hurt our ability to make distributions to our stockholders and the market price of our common stock.our managers incentive fee may induce it to make more speculative investments. our manager is entitled to an incentive fee from us that may cause it to invest in high risk investments. in addition to its base management fee, our manager is entitled to receive an incentive fee based entirely upon our achievement of targeted levels of funds from operations. in evaluating investments and other management strategies, the opportunity to earn an incentive fee based on funds from operations may lead our manager to place undue emphasis on the maximization of funds from operations at the expense of other criteria, such as preservation of capital, in order to achieve a higher incentive fee. investments with higher yield potential generally are riskier or more speculative. this could result in increased risk to our investment portfolio. risks related to our businesswe have no operating history and may not be able to successfully operate our business or generate sufficient revenue to make or sustain distributions to stockholders. we were organized in september 2006 and have no operating history. the results of our operations depend on many factors, including the performance of the initial assets, the availability of opportunities for the 15 acquisition of additional assets, the level and volatility of interest rates, readily accessible short- and long-term financing, conditions in the financial markets and economy, and our ability to successfully operate our business and execute our investment strategy. we will face substantial competition in acquiring suitable investments, which could adversely impact the yields we receive on our new investments.we are dependent on our manager, who has no experience operating a reit. although our manager has been active in real estate operations and lending for many years, it has no experience operating a reit and operating a business in compliance with the numerous technical restrictions and limitations set forth in the internal revenue code or the investment company act applicable to reits. our managers and its employees lack of experience in managing a portfolio of assets under reit and investment company act constraints may hinder their ability to achieve our investment objective. in addition, maintaining our reit qualification and complying with the investment company act exemptions limit the types of investments we are able to make. we can offer no assurance that our manager will be successful at all or as successful as in its previous endeavors. our board of directors will not review or approve individual investments unless the investment is outside our conflicts of interest policy or investment guidelines.we are dependent upon our manager and its key personnel for our success and may not find a suitable replacement if the management agreement is terminated or such key personnel are no longer available to us and, if the management agreement is not renewed without cause or if we elect not to renew the management agreement as a result of our managers underperformance, we will be prohibited from soliciting any officers or employees of our manager for a period of one year from the effective date of such termination. we will not have employees. our officers are employees of our manager. we do not have any separate facilities and are completely reliant on our manager, which has significant discretion as to the implementation of our operating policies and strategies. we depend on the diligence, skill and network of business contacts of our manager. our executive officers and our manager will evaluate, negotiate, structure, close, service and monitor our investments. our continued success will depend on the continued service of key employees of our manager. the management agreement does not require our manager to dedicate specific personnel to fulfilling its obligations to us under the management agreement, or require personnel to dedicate a specific amount of time. the departure of any key employee of our manager, or of a significant number of the professionals of our manager, could have a material adverse effect on our performance. we are also subject to the risk that our manager will not renew the management agreement and that no suitable replacement will be found to manage us. after june30, 2009, the initial term of the management agreement, or upon the expiration of any automatic renewal term, our manager may elect not to renew the management agreement without cause, without penalty, on 180 days prior written notice to us. we can offer no assurance that our manager will remain our external manager, that we will be able to find an adequate replacement for our manager should our manager elect not to renew the management agreement, or that we will continue to have access to our managers principals and professionals or their information or deal flow. if we elect not to renew the management agreement without cause or as a result of our managers underperformance, we will be prohibited, without the consent of our manager, for a period of one year after the expiration of the management agreement from employing or otherwise retaining any employee of our manager or any affiliate, or at any time any person who has been in the employ of our manager or an affiliate at any time within the one year period immediately preceding the date on which such person commences employment with us.our manager will have broad discretion to invest funds and may make investments that ultimately produce investment returns which are substantially below expectations or that result in losses. our manager is authorized to follow very broad investment guidelines and has great latitude within those guidelines in determining the types of assets it may decide are proper investments for us. our board of directors will periodically review our investment guidelines and our investment portfolio. however, our board of directors will not review or approve each proposed investment. in addition, in conducting periodic reviews, the directors will rely primarily on information provided to them by our manager. furthermore, transactions entered into by our manager may be costly, difficult or impossible to unwind by the time they are reviewed by our board of 16 directors. our manager has great latitude within the broad parameters of our investment guidelines in determining the types of assets it may decide are proper investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business, operations and results.our failure to manage future growth effectively may have a material negative impact on our business, financial condition and results of operations. our ability to achieve our investment objective depends on our ability to grow, which depends, in turn, on the senior management team of our manager and its ability to identify and invest in assets that meet our investment criteria. accomplishing this result on a cost-effective basis is largely a function of our managers structuring of our investment process, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms. our ability to grow is also dependent upon our managers ability to successfully hire, train, supervise and manage its employees. we may not be able to manage growth effectively or to achieve growth at all. any failure to manage our future growth effectively could have a material negative impact on our business, financial condition and results of operations.failure to procure adequate capital and funding would negatively impact our results and may, in turn, negatively affect the market price of shares of our common stock and our ability to make distributions to our stockholders. we depend upon the availability of adequate funding and capital for our operations. as a reit, we are required to distribute annually at least 90% of our reit taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders and are therefore not able to retain significant amounts of our earnings for new investments. the failure to secure acceptable financing could reduce our taxable income, as our investments would no longer generate the same level of net interest income due to the lack of funding or increase in funding costs. a reduction in our net income could reduce our liquidity and our ability to make distributions to our stockholders. we cannot assure you that any, or sufficient, funding or capital will be available to us in the future on terms that are acceptable to us. therefore, in the event that we cannot obtain sufficient funding on acceptable terms, there may be a negative impact on the market price of our common stock and our ability to make distributions.lenders may require us to enter into restrictive covenants relating to our operations. when we obtain financing, lenders could impose restrictions on us that would affect our ability to incur additional debt, our capability to make distributions to stockholders and our flexibility to determine our operating policies. loan documents we execute will contain negative covenants that may limit, among other things, our ability to repurchase stock, distribute more than a certain amount of our funds from operations, and employ leverage beyond certain amounts.if our manager ceases to be our manager pursuant to the management agreement, financial institutions providing any credit facilities we may have may not provide future financing to us. we are currently negotiating a warehouse facility with wachovia bank, n.a., an affiliate of one of our underwriters, which we expect to be in place upon consummation of this offering or shortly thereafter. we are also currently negotiating a warehouse facility with keybank national association, an affiliate of one of our underwriters. there is no assurance, however, that we will be able to close these facilities on terms favorable to us if at all. financial institutions that finance our investments pursuant to credit facilities and warehouse agreements may require that our manager remain our manager pursuant to the management agreement. if our manager ceases to be our manager, it may constitute an event of default and the financial institution providing the warehouse credit facility may have the right to terminate its facility and any obligation to advance funds to us to finance our future investments and/or to accelerate the repayment of amounts we have borrowed. if our manager ceases to be our manager for any reason and we are unable to obtain financing under these or replacement credit facilities, our growth may be limited. if we issue senior securities, we will be subject to restrictive covenants and limitations on our operating flexibility, which could adversely affect our ability to make distributions. if we decide to issue senior securities in the future, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. holders of senior securities may be granted specific rights, including the right to hold a perfected security interest in certain of our assets, the right to accelerate payments due under the indenture, rights to restrict dividend payments, and rights to require approval to sell assets. additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock. we, and indirectly our stockholders, will bear the cost of issuing and servicing such securities.the use of cdo financings with over-collateralization requirements may have a negative impact on our cash flow. we expect that the terms of cdos we may issue will generally provide that the principal amount of assets must exceed the principal balance of the related bonds by a certain amount, commonly referred to as over-collateralization. we anticipate that the cdo terms will provide that, if certain delinquencies and/or losses exceed specified levels, which we will establish based on the analysis by the rating agencies (or any financial guaranty insurer) of the characteristics of the assets collateralizing the bonds, the required level of over-collateralization may be increased or may be prevented from decreasing as would otherwise be permitted had losses or delinquencies not exceeded those levels. other tests (based on delinquency levels or other criteria) may restrict our ability to receive net income from assets collateralizing the obligations. we cannot assure you that the performance tests will be satisfied. in advance of completing negotiations with the rating agencies or other key transaction parties on our future cdo financings, we cannot assure you of the actual terms of the cdo delinquency tests, over-collateralization terms, cash flow release mechanisms or other significant factors regarding the calculation of net income to us. failure to obtain favorable terms with regard to these matters may materially and adversely affect the availability of net income to us. if our assets fail to perform as anticipated, our over-collateralization or other credit enhancement expense associated with our cdo financings will increase.we may be required to repurchase loans that we have sold or to indemnify holders of our cdos. if any of the loans we originate or acquire and sell or securitize do not comply with representations and warranties that we make about certain characteristics of the loans, the borrowers and the underlying properties, we may be required to repurchase those loans (including from a trust vehicle used to facilitate a structured financing of the assets through cdos) or replace them with substitute loans. in addition, in the case of loans that we have sold instead of retained, we may be required to indemnify persons for losses or expenses incurred as a result of a breach of a representation or warranty. repurchased loans typically require a significant allocation of working capital to be carried on our books, and our ability to borrow against such assets may be limited. any significant repurchases or indemnification payments could materially and adversely affect our financial condition and operating results.we may not be able to renew the total return swaps that we may enter into, which could adversely impact our leveraging strategy. in the future, we may leverage certain of our investments through the use of total return swaps. if we do, we may wish to renew many of the swaps, which are for specified terms, as they mature. however, there is a limited number of providers of such swaps, and there is no assurance the initial swap providers will choose to renew the swaps, and, if they do not renew, that we would be able to enter into new total return swaps with suitable replacement providers. providers may choose not to renew our total return swaps for a number of reasons, including: bullet increases in the providers cost of funding; insufficient volume of business with a particular provider; 18 our desire to invest in a type of swap that the provider does not view as economically attractive due to changes in interest rates or other market factors; or our inability to agree with a provider on terms.competition in acquiring desirable investments may limit their availability, which could, in turn, negatively affect our ability to make distributions to our stockholders. we will compete for investments with numerous public and private real estate investment vehicles, such as other reits, mortgage banks, pension funds, institutional investors and individuals. real estate loan assets are often obtained through a competitive bidding process. many of our competitors may have advantages over us and our manager. competition may result in higher prices for commercial mortgage loans and real estate related assets, lower yields and a narrower spread of yields over our borrowing costs. in addition, competition for desirable investments could delay the investment of our equity capital in desirable assets, which may, in turn, reduce earnings per share and may negatively affect our ability to maintain our dividend distribution. there can be no assurance that we will achieve investment results that will allow any specified level of cash distribution.we may incur borrowing costs related to any warehouse lines of credit and repurchase agreements we may obtain, which could harm our results of operations or financial condition. we intend to finance the acquisition of certain investments with warehouse lines of credit and repurchase agreements. in addition, we may engage in various types of securitizations in order to finance our loan originations. the amount of borrowings we intend to employ depends on, among other factors, the amount of our equity capital. our borrowing costs under any warehouse lines of credit and repurchase agreements we may obtain generally will be adjustable and will correspond to floating interest rates, such as libor or a treasury index, plus or minus a margin. the margins on these borrowings over or under interest rates may vary depending upon a number of factors, including, without limitation: the movement of interest rates; the availability of financing in the market; and the value and liquidity of our mortgage loans and real estate related assets. an increase in the interest rates of these borrowings could harm our results of operations and financial condition.to close transactions within a time frame that meets our borrowers needs, we may perform underwriting analyses in a very short period of time, which may result in credit decisions based on limited information. we may gain a competitive advantage by, from time to time, being able to analyze and close transactions within a very short period of time. our underwriting guidelines require a thorough analysis of many factors, including the underlying propertys financial performance and condition, geographic market assessment, experience and financial strength of the borrower and future prospects of the property within the market. if we make the decision to extend credit to a borrower prior to the completion of one or more of these analyses, we may fail to identify certain credit risks that we would otherwise have identified.we may be unable to generate sufficient revenue from operations to pay our operating expenses and to make distributions to our stockholders. as a reit, we are generally required to distribute at least 90% of our taxable income each year to our stockholders and we intend to pay quarterly dividends to our stockholders in amounts such that we distribute all or substantially all of our taxable income each year, subject to certain adjustments and to sufficient cash being available. however we have not established a minimum dividend payment level, and our ability to pay dividends may be adversely affected by the risk factors described in this prospectus. in the event of a downturn in our operating results and financial performance or unanticipated declines in the value of our asset portfolio, we may 19 be unable to pay quarterly dividends to our stockholders. the timing and amount of our dividends are in the sole discretion of our board of directors, and will depend upon, among other factors, our earnings, financial condition, maintenance of our reit qualification and other tax considerations and capital expenditure requirements, in each case as our board of directors may deem relevant from time to time. among the factors that could adversely affect our results of operations and impair our ability to pay dividends to our stockholders are: the profitability of the investment of the net proceeds of this offering; our ability to make profitable investments; defaults in our asset portfolio or decreases in the value of our portfolio; and the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates. a change in any one of these factors could affect our ability to pay dividends. if we are not able to comply with the restrictive covenants and financial ratios contained in our credit facilities, our ability to pay dividends to our stockholders may also be impaired. we cannot assure you that we will be able to pay dividends to our stockholders in the future or that the level of any dividends we pay will increase over time. in addition, dividends paid to stockholders are generally taxable to our stockholders as ordinary income, but a portion of our dividends may be designated by us as long-term capital gains to the extent they are attributable to capital gain income recognized by us, or may constitute a return of capital to the extent they exceed our earnings and profits as determined for tax purposes. a return of capital is not taxable, but it has the effect of reducing the basis of a stockholders investment in our common stock.our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests. our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from: actual receipt of an improper benefit or profit in money, property or services; or a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated. in addition, our charter permits us to agree to indemnify our present and former directors and officers for actions taken by them in those capacities to the maximum extent permitted by maryland law. our bylaws require us to indemnify each present or former director or officer, to the maximum extent permitted by maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. in addition, we may be obligated to fund the defense costs incurred by our directors and officers.compliance with our investment company act exemption imposes limits on our operations. we intend to conduct our operations so as not to become regulated as an investment company under the investment company act. we intend to qualify for an exemption from registration under section3(c)(5)(c) of the investment company act, which generally means that at least 55% of our portfolio must be comprised of qualifying real estate assets and at least another 25% of our portfolio must be comprised of additional qualifying real estate assets and real estate-related assets. to comply with these regulations, we may from time to time buy or originate whole mortgage loans and participations in whole mortgage loans, provided that we control the right to foreclose the mortgage securing the loan in the event of a default, and certain b notes and other qualifying assets. although we intend to monitor our portfolio periodically and prior to each acquisition, there can be no assurance that we will be able to maintain this exemption from registration. further, we may not be able to invest in sufficient qualifying real estate assets and/or real estate-related assets and future revisions of the investment 20 company act or further guidance from the staff of the sec may cause us to lose our exemption or force us to re-evaluate our portfolio and our business strategy. such changes may prevent us from operating our business successfully. we currently have two subsidiaries and in the future expect to operate all or more of our business through majority-owned or wholly-owned subsidiaries, including cdo subsidiaries. when we operate through subsidiaries, our subsidiaries will be subject to similar restrictions under the investment company act as described in this prospectus so that we do not come within the definition of an investment company under the investment company act. these restrictions also would limit the types of business in which we may engage, as described in this prospectus. a failure to satisfy these requirements could materially and adversely affect our business. as part of our managers obligations under the management agreement, our manager agreed to use commercially reasonable efforts to cooperate with our efforts to conduc | 1 | < 0.1% | |
| RISK FACTORS Any investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before you decide to buy our common stock. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stockWE HAVE A HISTORY OF LOSSES, AND WE MAY NOT BE ABLE TO MAINTAIN PROFITABILITY We have incurred net operating losses in each fiscal year since our inception in 1991, including a loss of $623,000 in fiscal 1999. As a result, we had an accumulated deficit of $10.9 million as of October 31, 1999. We may not be profitable in the future. We are making significant investments in research and development, sales and marketing and our operating infrastructure. We expect our spending in these areas will increase in the future. If we do not increase our revenue at an equal or greater rate than this spending, we may have operating losses. If our revenue does not grow sufficiently, we would need time to scale expenses back. If we are not able to react quickly enough to unanticipated decreases in revenue, we will not be able to maintain profitabilityOUR OPERATING RESULTS HAVE FLUCTUATED AND WE EXPECT THEM TO CONTINUE TO FLUCTUATE, SO YOU SHOULD NOT RELY ON HISTORICAL OPERATING RESULTS AS AN INDICATOR OF FUTURE PERFORMANCE Our operating results have fluctuated from quarter to quarter and year to year in the past and we expect them to continue to fluctuate in the future. As a result, you should not rely on our historical operating results as an indicator of future performance. For example, we reported operating income in the fourth quarter of fiscal 1998 and the first quarter of fiscal 1999 followed by operating losses in the last three quarters of fiscal 1999, followed by operating income in the first three quarters of fiscal 2000. We may experience further fluctuations in our operating results because of: - competitive market conditions; - the general level of sales of printer/copiers which connect to our products; - the cost and availability of components of our products; and - variations in the proportion of hardware and software in systems we sellSINCE MANY OF OUR POTENTIAL END USERS ARE SMALL BUSINESSES, IF THEIR BUSINESSES FAIL OR THEY CANNOT OBTAIN THIRD-PARTY FINANCING, OUR SALES WILL DECLINE Many of our potential end-user customers are small businesses and run a greater risk of business failure than large businesses. If their businesses fail, we will lose potential sales and our revenue will not increase. Further, if these customers are unable to obtain acceptable third party financing, they may not purchase our products. Some of our competitors could use their significant financial resources to offer more attractive financing terms than the financing terms otherwise available to purchase our products. These factors could limit or reduce our customer base, causing our sales to suffer. 4 8 WE RELY ON SALES OF ONE PRODUCT LINE, AND WE WILL NOT HAVE AN ALTERNATE SOURCE OF REVENUE IF DEMAND FOR THIS PRODUCT LINE DECLINES We generate substantially all of our revenue from one product line, the MicroPress. If potential customers prefer competing products, we would lose a substantial amount of revenue. Additionally, this product line may not be profitable for other reasons, including pricing pressures or manufacturing difficulties. If this product line is not profitable, we will not be profitableWE DERIVE A LARGE PERCENTAGE OF OUR REVENUE FROM A FEW OEM CUSTOMERS; A LOSS OF ANY OF THESE CUSTOMERS WOULD REDUCE OUR REVENUE AND OUR RESULTS OF OPERATIONS WOULD SUFFER Since fiscal 1998, our original equipment manufacturer customers, referred to as OEM customers, have represented a significant portion of our revenuesMinolta Co., Ltd. accounted for 39.1% of our revenue for the nine months ended October 31, 1999. If we lose one of our OEM customers or they decrease orders of our products, our revenue would decline and our results of operations would suffer. For example, in June 1998, Mita Industrial Co., Ltd. of Japan discontinued orders of our systems and subsequently entered into reorganization proceedings. An OEM customer could decrease its orders for our products if demand for its products declines. Alternatively, our OEMs could choose to purchase a competitor's products, particularly if available in their regionAlso, since our current OEM customers are all Japanese companies, volatility in the economies of Asian countries could impact their businesses, which could result in decreased orders of our products WE RELY HEAVILY ON OUR DEALER NETWORK AND IF THEY DO NOT EFFECTIVELY MARKET OR SELL OUR PRODUCTS, WE WILL LOSE REVENUE The majority of our revenue has come from sales through our dealer network and we generally do not sell our products directly to end users. However, we do not control our dealers and cannot be certain that our dealers will continue to effectively market or sell our products. If they do not, our sales will sufferIn the future, if we do not add new dealers and increase business with our existing dealers, our business will not grow BECAUSE OUR PRODUCTS DEPEND ON SOFTWARE LICENSED TO US BY THIRD PARTIES, ANY LOSS OF THESE LICENSES WOULD RESULT IN INCREASED COSTS AND PRODUCTION DELAYS Our products depend on software licensed to us on a non-exclusive basis by third parties. If those parties fail to continue to license their software to us or to support this software, we would incur costs and experience delays of at least several months in integrating alternate software into our products. This would result in diversion of our research and development resources, delay in production and could result in lost revenue and harm to our reputation. In some instances, there are a limited number of suppliers of specialized software and we could have difficulty in obtaining an alternate supplier. This is true of Harlequin ScriptWorks, a PostScript page description software for which there are extremely limited alternatives. A competitor of Harlequin notified us in December 1999 that the competitor believes some of the Harlequin software licensed to us for use in color processing infringes that competitor's patentsIf the Harlequin software we license is found to infringe the competitor's patents, we will be forced to seek an alternative color processing module, which could harm our sales to potential customers seeking color capabilities. 5 9 NEW RELEASES BY OUR SOFTWARE SUPPLIERS OR THE DEVELOPMENT OF SUPERIOR SOFTWARE BY THEIR COMPETITORS COULD RESULT IN DELAYS IN SHIPMENT OR LOSS OF REVENUE We may be required to expend significant time and resources to make our systems compatible with new releases by our software suppliers, which could result in product shipment and revenue recognition delays. In addition, if the competitors of our suppliers develop superior software, our products may not achieve market acceptance and we would lose revenue unless we obtain a license for the superior software. We may not be able to obtain new software licenses on commercially reasonable terms, or at allIF THIRD-PARTY SUPPLIERS OF EQUIPMENT FAIL TO DELIVER, WE COULD INCUR SIGNIFICANT COSTS AND DELAYS IN PRODUCT SHIPMENT We purchase hardware, such as print devices and scanners, from third-party manufacturers and resell them under our brand as part of our systems. In addition, we outsource the manufacturing of some of the hardware components of our products. If those third party manufacturers fail to deliver these products or components, we would have to find alternate suppliers, would incur significant development costs and could experience delays in product shipmentsFor example, our black and white print devices are purchased from a Japanese manufacturer. It would take a significant amount of time and effort to find an alternate black and white print device and develop the connectivity of that device to the MicroPress. Failure to find alternative suppliers of other components could affect our product availability and sales. Additionally, since we purchase many parts and components from manufacturers in Asia, instability in this region could impact the pricing or availability of these productsOUR MARKET IS EXTREMELY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE GREATER MARKET PRESENCE AND RESOURCES THAN WE HAVE The market for our product is extremely competitive and we expect competition to increase. Many of our existing and potential competitors have longer operating histories, significantly greater resources and greater name recognition than we have. As a result, these competitors may have an advantage over us in gaining market acceptance, may respond more effectively to changes in the market and may devote greater resources to the development, promotion, sale and support of their products. Increased competition could result in a loss of revenue as a result of loss of market share and significant price reductions, reducing our profitsOUR INTERNATIONAL SALES ARE SUBJECT TO REGULATORY, POLITICAL AND CURRENCY EXCHANGE RATE RISKS WHICH COULD REDUCE OUR REVENUE Revenue from customers outside the United States represented 33.7% of our revenue in fiscal 1999 and 47.9% of our revenue for the first nine months of fiscal 2000. Our international sales could decrease if tariffs, duties or taxes increase the cost of our products in foreign countries. Our foreign product sales could be limited by the imposition of government controls or political and economic instability, resulting in lower revenues. We may also experience delays in receipt of revenue or increased difficulties in collecting accounts receivable. Additionally, our results of operations could be harmed by changes in currency exchange rates. Currently, all our sales are denominated in U.S. dollars. If the value of the U.S. dollar increases relative to a particular foreign currency, our products could become relatively more expensive. This could result in a reduction in our sales in a particular country. 6 10 OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE, AND IF WE FAIL TO DEVELOP AND MARKET NEW TECHNOLOGIES RAPIDLY, OUR RESULTS OF OPERATIONS WILL SUFFER Customers are demanding faster systems with more features and our competitors are developing new technologies to meet these demands. If we do not continually develop new technologies and improvements to our existing technologies we will not remain competitive and our sales and our results of operations will suffer. The product life cycle is shortening as new technologies are brought to market, while development of new technologies requires an increasing amount of time and money. We may experience delays in product development due to technological constraints, which could result in lost sales. In addition, our cost to develop the technologies may be so great that we cannot make a profit selling products using these technologies. Finally, our competitors may develop technologies that make our technologies obsolete or less attractive to potential customers which would also harm our salesIF OUR PRODUCTS CONTAIN DEFECTS, OUR SALES COULD SUFFER AND WE COULD HAVE INCREASED COSTS WHICH WOULD HURT OUR RESULTS OF OPERATIONS Complex products like ours may contain defects or errors that can only be detected when the product is in use. Despite extensive testing of our products, we may release products into the market with undetected errors, which could result in: - the loss or delay of revenue; - loss of market share; - diversion of research and development resources; or - increased service and warranty costs. In addition, if our products are not reliable, we may lose credibility with existing and potential customers, resulting in lost salesWE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS, WHICH COULD HARM OUR COMPETITIVE POSITION, RESULTING IN DECREASED REVENUE Our success is based, in part, on our proprietary technology. If we cannot protect our intellectual property and proprietary rights, we may not remain competitive. Trade secret and copyright laws provide only limited protection of our software, documentation and other written materials. We may not be able to protect our rights if the patents for which we apply or have applied are not granted or if our patents are challenged or invalidated. Further, because we sell many of our products in foreign countries where intellectual property laws are not well developed or are poorly enforced, we may not be able to protect our proprietary technology in these countries. A third party could reverse engineer our products, or bypass hardware security devices and obtain access to our software, or independently develop similar software or proprietary information and use it to compete with us. 7 11 INFRINGEMENT CLAIMS BY THIRD PARTIES COULD BE COSTLY AND CAUSE PRODUCT SHIPMENT DELAYS Third parties may file claims against us alleging infringement of their patents, copyrights or other intellectual property rights. Regardless of its merit, an infringement claim against us could: - require significant management time and effort; - result in costly litigation; or - cause product shipment delays. In December 1999, we were notified by a competitor of Harlequin that the competitor is suing Harlequin for patent infringement for color processing products licensed to us and others by Harlequin. While Harlequin has represented to us that it has the rights to the products licensed to us, if Harlequin is not successful in defending its rights, we could be subject to a claim by that competitor. Further, any claims may require us to enter into royalty or licensing agreements which may not be obtainable on terms acceptable to usOUR FAILURE TO RETAIN AND ATTRACT PERSONNEL COULD HARM OUR BUSINESS, OPERATIONS AND PRODUCT DEVELOPMENT EFFORTS Our future success depends, in significant part, upon the continued service of key personnel and our ability to attract, retain and motivate highly qualified employees. In particular, the services of Michael E. Kohlsdorf, our president and chief executive officer; E. Neal Tompkins, our executive vice president and chief technology officer; and Michael W. Barry, our senior vice president, development and engineering are critical to our business. If we lose any of our key personnel, or fail to attract qualified new employees, our business, operations and product development efforts would suffer. Although we have employment agreements with Messrs. Kohlsdorf and Tompkins, these agreements do not obligate them to remain in our employ. We do not have key man insurance on any of our employeesIF OUR SYSTEMS OR THE SYSTEMS OF OUR SUPPLIERS OR CUSTOMERS ARE NOT YEAR 2000 COMPLIANT, OUR BUSINESS COULD BE SEVERELY DISRUPTED Although we have attempted to identify and address year 2000 issues related to our business, we cannot be certain that all potential year 2000 issues have been identified or corrected. Additionally, we cannot guarantee that the third-party servers, printers, scanners and operating systems used in, or in conjunction with, our products are year 2000 compliant. If our products, or components used in our products, are not year 2000 compliant, we would have to delay shipping our products until they are year 2000 compliant. Delays in product shipments could result in lost revenue and harm to our reputationAdditionally, we cannot assure you that our customers will not assert year 2000 related claims against us even if our products are year 2000 compliant, which could require us to incur substantial costs and invest significant time defending any claims. As a result of year 2000 issues, customers may delay purchases of our products. Any resulting changes in our customers' purchasing patterns could result in decreased sales and revenue. 8 12 Further, if our internal systems or those of other third-party vendors, such as utilities and telecommunications providers, are not year 2000 compliant, our business could be materially disruptedOUR ARTICLES OF INCORPORATION AND BYLAWS AND PROVISIONS OF GEORGIA LAW COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US EVEN IF DOING SO WOULD BE IN YOUR INTEREST Provisions of our articles of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would be in the best interest of our shareholders. It could be difficult to acquire us because: - our directors serve for staggered terms; - our directors may be removed only for cause by a supermajority vote of our shareholders; - our shareholders may act only at meetings, and not by written consent; and - we are subject to the fair-price and business combination provisions of the Georgia corporate lawsAlso, our board of directors can issue preferred stock and determine the price, rights, and preferences of this preferred stock without shareholder approval This authority gives our board greater flexibility to take actions such as making acquisitions. However, if we issue preferred stock, a third party may find it more difficult to acquire control of usOUR OFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING SHAREHOLDER APPROVAL, WHICH COULD DELAY OR PREVENT A CHANGE OF CONTROL After this offering, our directors and officers and their affiliates will own about 33.6% of our outstanding common stock. As a result, they will have significant influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactionsThis concentration of ownership may have the effect of delaying or preventing a change in control of T/R Systems OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT THE PRICE YOU PAID There has been no public market for our common stock and we cannot assure you that an active trading market will develop or that you will be able to resell your shares at the price you paid. Additionally, in recent years, the stock market in general, and the stock prices of technology companies in particular, have experienced extreme price fluctuations, sometimes unrelated to the operating performance of particular companies. These market fluctuations may result in a material decline in the market price of our common stock. The price of our common stock after this offering is likely to fluctuate due to many factors, including: - variations in actual, anticipated or estimated quarterly earnings; - announcements by competitors; and - future sales of significant amounts of our common stock. 9 | 1 | < 0.1% | |
| risk factors investing in our common stock involves a high degree of risk. you should carefully consider each of the following risk factors, as well as the other information in this prospectus, including our consolidated financial statements and the related notes, before deciding whether to invest in shares of our common stock. if any of the following risks actually occurs, our business, results of operations and financial condition may be materially and adversely affected. in that event, the trading price of our common stock could decline and you could lose all or part of your investment. please also see the special note regarding forward-looking statements. risks related to our business the cosmetics industry is highly competitive, and if we are unable to compete effectively our results will suffer. we face vigorous competition from companies throughout the world, including large multinational consumer products companies that have many cosmetics brands under ownership and standalone cosmetics brands, including those that may target the latest trends or specific distribution channels. competition in the cosmetics industry is based on the introduction of new products, pricing of products, quality of products and packaging, brand awareness, perceived value and quality, innovation, in-store presence and visibility, promotional activities, advertising, editorials, e-commerce and mobile-commerce initiatives and other activities. we must compete with a high volume of new product introductions and existing products by diverse companies across several different distribution channels. many multinational consumer companies have greater financial, technical or marketing resources, longer operating histories, greater brand recognition or larger customer bases than we do and may be able to respond more effectively to changing business and economic conditions than we can. many of these competitors products are sold in a wider selection or greater number of retail stores and possess a larger presence in these stores, typically having significantly more inline shelf space than we do. given the finite space allocated to cosmetic products by retail stores, our ability to grow the number of retail stores in which our products are sold, and expand our space allocation once in these retail stores, may require the removal or reduction of the shelf space of these competitors. we may be unsuccessful in our growth strategy in the event retailers do not reallocate shelf space from our competitors to us. our competitors may attempt to gain market share by offering products at prices at or below the prices at which our products are typically offered, including through the use of large percentage discounts and buy one and get one free offers. competitive pricing may require us to reduce our prices, which would decrease our profitability or result in lost sales. our competitors, many of whom have greater resources than we do, may be better able to withstand these price reductions and lost sales. it is difficult for us to predict the timing and scale of our competitors activities in these areas or whether new competitors will emerge in the cosmetics business. in addition, further technological breakthroughs, including new and enhanced technologies which increase competition in the online retail market, new product offerings by competitors and the strength and success of our competitors marketing programs may impede our growth and the implementation of our business strategy. our ability to compete also depends on the continued strength of our brand and products, the success of our marketing, innovation and execution strategies, the continued diversity of our product offerings, the successful management of new product introductions and innovations, strong operational execution, including in order fulfillment, and our success in entering new markets and expanding our business in existing geographies. if we are unable to continue to compete effectively, it could have a material adverse effect on our business, results of operations and financial condition.our new product introductions may not be as successful as we anticipate. the cosmetics industry is driven in part by fashion and beauty trends, which may shift quickly. our continued success depends on our ability to anticipate, gauge and react in a timely and cost-effective manner to changes in consumer preferences for cosmetic products, consumer attitudes toward our industry and brand and where and how consumers shop for those products. we must continually work to develop, produce and market new products, maintain and enhance the recognition of our brand, maintain a favorable mix of products and develop our approach as to how and where we market and sell our products. we have an established process for the development, evaluation and validation of our new product concepts. nonetheless, each new product launch online, through our e.l.f. stores and through our retail customers involves risks, as well as the possibility of unexpected consequences. for example, the acceptance of new product launches and sales to our retail 12 customers may not be as high as we anticipate, due to lack of acceptance of the products themselves or their price, or limited effectiveness of our marketing strategies. in addition, our ability to launch new products may be limited by delays or difficulties affecting the ability of our suppliers or manufacturers to timely manufacture, distribute and ship new products or displays for new products. sales of new products may be affected by inventory management by our retail customers, and we may experience product shortages or limitations in retail display space by our retail customers. we may also experience a decrease in sales of certain existing products as a result of newly-launched products, the impact of which could be exacerbated by shelf space limitations or any shelf space loss. any of these occurrences could delay or impede our ability to achieve our sales objectives, which could have a material adverse effect on our business, financial condition and results of operations. as part of our ongoing business strategy we expect we will need to continue to introduce new products in our traditional product categories of eyes, lips, face and tools, while also expanding our product launches into adjacent categories in which we may have little to no operating experience. for example, we recently introduced a high-quality skin care assortment. the success of product launches in adjacent product categories could be hampered by our relative inexperience operating in such categories, the strength of our competitors or any of the other risks referred to above. furthermore, any expansion into new product categories may prove to be an operational and financial constraint which inhibits our ability to successfully accomplish such expansion. our inability to introduce successful products in our traditional categories or in adjacent categories could limit our future growth and have a material adverse effect on our business, financial condition and results of operations.we depend on a limited number of retailers for a large portion of our net sales, and the loss of one or more of these retailers, or business challenges at one or more of these retailers, could adversely affect our results of operations. a limited number of our retail customers account for a large percentage of our net sales. target and walmart accounted for 28% and 23%, respectively, of our net sales in 2015. we expect target, walmart and a small number of other retailers will, in the aggregate, continue to account for the majority of our net sales for foreseeable future periods. any changes in the policies or our ability to meet the demands of our retail customers relating to service levels, inventory de-stocking, pricing and promotional strategies or limitations on access to display space could have a material adverse effect on our business, financial condition and results of operations. as is typical in our industry, our business with retailers is based primarily upon discrete sales orders, and we do not have contracts requiring retailers to make firm purchases from us. accordingly, retailers, including target and walmart, could reduce their purchasing levels or cease buying products from us at any time and for any reason. if we lose a significant retail customer or if sales of our products to a significant retailer materially decrease, it could have a material adverse effect on our business, financial condition and results of operations. because such a high percentage of our sales are made through our retail customers, our results are subject to risks relating to the general business performance of our key retail customers. factors that adversely affect our retail customers businesses may also have a material adverse effect on our business, financial condition and results of operations. these factors may include: any reduction in consumer traffic and demand at our retail customers as a result of economic downturns, changes in consumer preferences or reputational damage as a result of, among other developments, data privacy breaches, regulatory investigations or employee misconduct; any credit risks associated with the financial condition of our retail customers; the effect of consolidation or weakness in the retail industry or at certain retail customers, including store closures and the resulting uncertainty; and inventory reduction initiatives and other factors affecting retail customer buying patterns, including any reduction in retail space committed to cosmetics and retailer practices used to control inventory shrinkage.our success depends, in part, on the quality, performance and safety of our products. any loss of confidence on the part of consumers in the ingredients used in our products, whether related to product contamination or product safety or quality failures, actual or perceived, or inclusion of prohibited ingredients, could tarnish the image of our brand and could cause consumers to choose other products. allegations of contamination or other adverse 13 effects on product safety or suitability for use by a particular consumer, even if untrue, may require us to expend significant time and resources responding to such allegations and could, from time to time, result in a recall of a product from any or all of the markets in which the affected product was distributed. any such issues or recalls could negatively affect our profitability and brand image. if our products are found to be, or perceived to be, defective or unsafe, or if they otherwise fail to meet our consumers expectations, our relationships with consumers could suffer, the appeal of our brand could be diminished, we may need to recall some of our products and/or become subject to regulatory action, and we could lose sales or market share or become subject to boycotts or liability claims. in addition, safety or other defects in our competitors products could reduce consumer demand for our own products if consumers view them to be similar. any of these outcomes could result in a material adverse effect on our business, financial condition and results of operations.we may not be able to successfully implement our growth strategy. our future growth, profitability and cash flows depend upon our ability to successfully implement our business strategy, which, in turn, is dependent upon a number of factors, including our ability to: build a great brand by attracting new consumers and encouraging our current consumers to use more e.l.f. products; continue to use innovation to drive sales and margin and expand into relevant adjacencies; expand brand penetration by growing our space allocations with our existing national retail customers, increasing the number of our retail customers, growing our direct-to-consumer business and expanding internationally; and leverage our high-performance team culture and executional capability to drive operating margins and efficiencies. there can be no assurance that we can successfully achieve any or all of the above initiatives in the manner or time period that we expect. further, achieving these objectives will require investments which may result in short-term costs without generating any current net sales and therefore may be dilutive to our earnings. we cannot provide any assurance that we will realize, in full or in part, the anticipated benefits we expect our strategy will achieve. the failure to realize those benefits could have a material adverse effect on our business, financial condition and results of operations.our growth and profitability are dependent on a number of factors, and our historical growth may not be indicative of our future growth. although our net sales and profitability have grown rapidly from 2012 through 2015, this should not be considered as indicative of our future performance. we may not be successful in executing our growth strategy, and even if we achieve our strategic plan, we may not be able to sustain profitability. in future periods, our revenue could decline or grow more slowly than we expect. we also may incur significant losses in the future for a number of reasons, including the following risks and the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors: we may lose one or more significant retail customers, or sales of our products through these retail customers may decrease; the ability of our third-party suppliers and manufacturers to produce our products and of our distributors to distribute our products could be disrupted; because all of our products are sourced and manufactured in china, our operations are susceptible to risks inherent in doing business there; our products may be the subject of regulatory actions, including but not limited to actions by the food and drug administration (the fda), the federal trade commission (the ftc) and the consumer product safety commission (the cpsc) in the united states; we may be unable to introduce new products that appeal to consumers or otherwise successfully compete with our competitors in the cosmetics industry; we may be unsuccessful in enhancing the recognition and reputation of our brand, and our brand may be damaged as a result of, among other reasons, our failure, or alleged failure, to comply with applicable ethical, social, product, labor or environmental standards; 14 we may experience service interruptions, data corruption, cyber-based attacks or network security breaches which result in the disruption of our operating systems or the loss of confidential information of our consumers; we may be unable to retain key members of our senior management team or attract and retain other qualified personnel; and we may be affected by any adverse economic conditions in the united states or internationally.we may be unable to manage our growth effectively, which would harm our business, financial condition and results of operations. we have grown rapidly, with our net sales increasing from $82.9million in the year ended december31, 2012 to $191.4 million in the year ended december31, 2015. our growth has placed, and will continue to place, a strain on our management team, financial and information systems, supply chain and distribution capacity and other resources. to manage growth effectively, we must continue to enhance our operational, financial and management systems, including our warehouse management, inventory control and in-store point-of-sale systems; maintain and improve our internal controls and disclosure controls and procedures; maintain and improve our information technology systems and procedures; and expand, train and manage our employee base. we may not be able to effectively manage this expansion in any one or more of these areas, and any failure to do so could significantly harm our business, financial condition and results of operations. our rapid growth also makes it difficult for us to adequately predict the expenditures we will need to make in the future. if we do not make the necessary overhead expenditures to accommodate our future growth, we may not be successful in executing our growth strategy, and our results of operations would suffer.any damage to our reputation or brand may materially and adversely affect our business, financial condition and results of operations. we believe that developing and maintaining our brand is critical and that our financial success is directly dependent on consumer perception of our brand. furthermore, the importance of our brand recognition may become even greater as competitors offer more products similar to ours. we have relatively low brand awareness among consumers when compared to other cosmetic brands, and maintaining and enhancing the recognition and reputation of our brand is critical to our business and future growth. many factors, some of which are beyond our control, are important to maintaining our reputation and brand. these factors include our ability to comply with ethical, social, product, labor and environmental standards. any actual or perceived failure in compliance with such standards could damage our reputation and brand. the growth of our brand depends largely on our ability to provide a high-quality consumer experience, which in turn depends on our ability to bring innovative products to the market at competitive prices that respond to consumer demands and preferences. additional factors affecting our consumer experience include our ability to provide appealing store sets in retail stores, the maintenance and stocking of those sets by our retail customers, the overall shopping experience provided by our retail customers, a reliable and user-friendly website interface and mobile applications for our consumers to browse and purchase products on elfcosmetics.com and an engaging environment in our e.l.f. stores. if we are unable to preserve our reputation, enhance our brand recognition or increase positive awareness of our products and in-store and internet platforms, it may be difficult for us to maintain and grow our consumer base, and our business, financial condition and results of operations may be materially and adversely affected. the success of our brand may also suffer if our marketing plans or product initiatives do not have the desired impact on our brands image or its ability to attract consumers. further, our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, our failure to maintain the quality of our products, product contamination, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers.a disruption in our operations could materially and adversely affect our business. as a company engaged in distribution on a global scale, our operations, including those of our third-party manufacturers, suppliers and delivery service providers, are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, disruptions in information systems, product quality control, safety, 15 licensing requirements and other regulatory issues, as well as natural disasters, pandemics, border disputes, acts of terrorism and other external factors over which we and our third-party manufacturers, suppliers and delivery service providers have no control. the loss of, or damage to, the manufacturing facilities or distribution centers of our third-party manufacturers, suppliers and delivery service providers could have a material adverse effect on our business, financial condition and results of operations. we depend heavily on ocean container delivery to receive shipments of our products from our third-party manufactures located in china and contracted third-party delivery service providers to deliver our products to a single distribution facility located in ontario, california, and from there to our retail customers. further, we rely on postal and parcel carriers for the delivery of products sold directly to consumers through elfcosmetics.com. interruptions to or failures in these delivery services could prevent the timely or successful delivery of our products. these interruptions or failures may be due to unforeseen events that are beyond our control or the control of our third-party delivery service providers, such as inclement weather, natural disasters or labor unrest. for example, in the fall of 2014, longshoreman work stoppages created a significant backlog of cargo containers at ports. we experienced delays in the shipment of our products as a result of this backlog and were unable to meet our planned inventory allocations for a limited period of time. as another example, in december 2015, a parcel carrier returned five pallets of holiday shipments to us based on their service backlog, causing significant delays in our holiday shipments. if our products are not delivered on time or are delivered in a damaged state, retail customers and consumers may refuse to accept our products and have less confidence in our services. furthermore, the delivery personnel of contracted third-party delivery service providers act on our behalf and interact with our consumers personally. any failure to provide high-quality delivery services to our consumers may negatively affect the shopping experience of our consumers, damage our reputation and cause us to lose consumers. our ability to meet the needs of our consumers, retail customers and our e.l.f. stores depends on the proper operation of our ontario, california distribution facility, where most of our inventory that is not in transit is housed. although we currently insure our inventory, our insurance coverage may not be sufficient to cover the full extent of any loss or damage to our inventory or distribution facility, and any loss, damage or disruption of this facility, or loss or damage of the inventory stored there, could materially and adversely affect our business, financial condition and results of operations.we rely on third-party suppliers, manufacturers, distributors and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services. we do not own or operate any manufacturing facilities. we use multiple third-party suppliers and manufacturers based in china to source and manufacture all of our products. we engage our third-party suppliers and manufacturers on a purchase order basis and are not party to long-term contracts with any of them. the ability of these third parties to supply and manufacture our products may be affected by competing orders placed by other customers and the demands of those customers. if we experience significant increases in demand, or need to replace a significant number of existing suppliers or manufacturers, there can be no assurance that additional supply and manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer will allocate sufficient capacity to us in order to meet our requirements. in addition, quality control problems, such as the use of ingredients and delivery of products that do not meet our quality control standards and specifications or comply with applicable laws or regulations, could harm our business. these quality control problems could result in regulatory action, such as restrictions on importation, products of inferior quality or product stock outages or shortages, harming our sales and creating inventory write-downs for unusable products. we have also outsourced significant portions of our distribution process, as well as certain technology-related functions, to third-party service providers. specifically, we rely on third-party distributors to sell our products in a number of foreign countries, our sole distribution center in california is managed and staffed by a third-party service provider, we are dependent on a single third-party vendor for credit card processing and we utilize a third-party hosting and networking provider to host our web services, including elfcosmetics.com. the failure of one or more of these entities to provide the expected services on a timely basis, or at all, or at the prices we expect, or the costs and disruption incurred in changing these outsourced functions to being performed under our management and direct control or that of a third-party, may have a material adverse effect on our business, financial condition and results of operations. we are not party to long-term contracts with some of our distributors, and upon expiration of these existing agreements, we may not be able to renegotiate the terms on a commercially reasonable basis, or at all. 16 further, our third-party manufacturers, suppliers and distributors may: have economic or business interests or goals that are inconsistent with ours; take actions contrary to our instructions, requests, policies or objectives; be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, and to comply with applicable regulations, including those regarding the safety and quality of products and ingredients; have financial difficulties; encounter raw material or labor shortages; encounter increases in raw material or labor costs which may affect our procurement costs; disclose our confidential information or intellectual property to competitors or third parties; engage in activities or employ practices that may harm our reputation; and work with, be acquired by, or come under control of, our competitors. the occurrence of any of these events, alone or together, could have a material adverse effect on our business, financial condition and results of operations. in addition, such problems may require us to find new third-party suppliers, manufacturers or distributors, and there can be no assurance that we would be successful in finding third-party suppliers, manufacturers or distributors meeting our standards of innovation and quality. the management and oversight of the engagement and activities of our third-party suppliers, manufacturers and distributors requires substantial time, effort and expense of our employees, and we may be unable to successfully manage and oversee the activities of our third-party manufacturers, suppliers and distributors. if we experience any supply chain disruptions caused by our manufacturing process or by our inability to locate suitable third-party manufacturers or suppliers, or if our manufacturers or raw material suppliers experience problems with product quality or disruptions or delays in the manufacturing process or delivery of the finished products or the raw materials or components used to make such products, our business, financial condition and results of operations could be materially and adversely affected.if we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected. our business requires us to manage a large volume of inventory effectively. we depend on our forecasts of demand for and popularity of various products to make purchase decisions and to manage our inventory of stock-keeping units (skus). demand for products, however, can change significantly between the time inventory or components are ordered and the date of sale. demand may be affected by seasonality, new product launches, rapid changes in product cycles and pricing, product defects, promotions, changes in consumer spending patterns, changes in consumer tastes with respect to our products and other factors, and our consumers may not purchase products in the quantities that we expect. it may be difficult to accurately forecast demand and determine appropriate levels of product or componentry. we generally do not have the right to return unsold products to our suppliers. if we fail to manage our inventory effectively or negotiate favorable credit terms with third-party suppliers, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs. in addition, if we are required to lower sale prices in order to reduce inventory level or to pay higher prices to our suppliers, our profit margins might be negatively affected. any of the above may materially and adversely affect our business, financial condition and results of operations. see also our quarterly results of operations fluctuate due to seasonality, order patterns from key retail customers and other factors, and we may not have sufficient liquidity to meet our seasonal working capital requirements.our substantial indebtedness may have a material adverse effect on our business, financial condition and results of operations. as of june 30, 2016, we had a total of $206.4 million of indebtedness, consisting of amounts outstanding under our credit facilities and capital lease obligations, and a total availability of $22.8 million under our revolving credit facility (as defined under description of certain indebtedness). our indebtedness could have significant consequences, including: requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of funding growth, working capital, capital expenditures, investments or other cash requirements; 17 reducing our flexibility to adjust to changing business conditions or obtain additional financing; exposing us to the risk of increased interest rates as our borrowings are at variable rates; making it more difficult for us to make payments on our indebtedness; subjecting us to restrictive covenants that may limit our flexibility in operating our business, including our ability to take certain actions with respect to indebtedness, liens, sales of assets, consolidations and mergers, affiliate transactions, dividends and other distributions and changes of control; subjecting us to maintenance covenants which require us to maintain specific financial ratios; and limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements and general corporate or other purposes.our quarterly results of operations fluctuate due to seasonality, order patterns from key retail customers and other factors, and we may not have sufficient liquidity to meet our seasonal working capital requirements. we generate a significant portion of our net sales in the third and fourth quarters of our fiscal year as a result of higher sales during the holiday season, and adverse events that occur during the third or fourth quarter could have a disproportionate effect on our results of operations for the entire fiscal year. as a result of higher sales during the third and fourth quarters, our working capital needs are greater during the second and third quarters of the fiscal year. in addition to holiday seasonality, we may experience variability in net sales and net income throughout the year as a result of the size and timing of orders from our retail customers. because a limited number of our retail customers account for a large percentage of our net sales, a change in the order pattern of one or more of our large retail customers could cause a significant fluctuation of our quarterly results or reduce our liquidity. furthermore, product orders from our large retail customers may vary over time due to changes in their inventory or out-of-stock policies. if we were to experience a significant shortfall in sales or profitability or internally generated funds, we may not have sufficient liquidity to fund our business. as a result of quarterly fluctuations caused by these and other factors, comparisons of our operating results across different fiscal quarters may not be accurate indicators of our future performance. any quarterly fluctuations that we report in the future may differ from the expectations of market analysts and investors, which could cause the price of our common stock to fluctuate significantly.we are increasingly dependent on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks or network | 1 | < 0.1% | |
| risk factors investing in our common stock involves a high degree of risk. you should carefully consider the risk factors set forth below and all other information contained in this prospectus before making an investment decision regarding our common stock. the risks described below are the significant risk factors, currently known and unique to us, that make an investment in our common stock speculative or risky. if any of these risks occur, our business, financial condition or results of operations could suffer, and you could lose part or all of your investment. risks related to our business the loss of one or more of our significant customers may adversely affect our business. historically, we have relied on a limited number of customers for a substantial portion of our total sales. in the first quarter of 2004, our 10 largest end customers accounted for approximately 54% of our total net sales. motorola, our largest end customer, accounted for 26% of our total net sales. in particular, in the first quarter of 2004, approximately 73% of wmsg net sales were to motorola on an end customer basis. in 2003, our 10 largest end customers accounted for approximately 54% of our total net sales. motorola, our largest end customer, accounted for 23% of our total net sales. in particular, in 2003, approximately 69% of wmsg net sales were to motorola on an end customer basis. in 2002, our 10 largest end customers accounted for approximately 55% of our total net sales. motorola, our largest end customer, accounted for approximately 26% of our total net sales in 2002. in particular, in 2002, approximately 73% of wmsg net sales were to motorola on an end customer basis. in 2001, our 10 largest end customers accounted for approximately 50% of our total net sales. motorola accounted for approximately 23% of our total net sales in 2001. in particular, in 2001, approximately 71% of wmsg net sales were to motorola on an end customer basis. the purchase and supply agreement that we entered into with motorola will not assure us of sales to motorola in the future comparable to historical levels. the loss of motorola or one of our other major end customers, or any substantial reduction in sales to any of these customers, could have a material adverse effect on our business, financial condition and results of operations.we incurred sizeable net losses and may experience future net losses. our operating results have been adversely affected by, among other things, a global economic slowdown and an abrupt decline in demand for many of the end products that incorporate our semiconductor products. we incurred sizeable net losses in each of 2001, 2002 and 2003 of approximately $2.2 billion, $1.8 billion and $366 million, respectively. we may face reduced end-customer demand, underutilization of our manufacturing capacity, changes in our revenue mix and other factors that could adversely affect our results of operations in the near term. while we achieved profitability in the fourth quarter of 2003 and continued profitability in the first quarter of 2004, we cannot predict whether we will maintain profitability in future periods.we operate in the highly cyclical semiconductor industry, which is subject to significant downturns. the semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand. the industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies and their customers products and declines in general economic conditions. these downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. we have experienced these conditions in our business in the past and may experience such downturns in the future. for example, 12 the semiconductor industry association expects that year-over-year semiconductor industry revenue growth will decline from 29% in 2004 to 4% in 2005. we may not be able to manage these downturns. any future downturns of this nature could have a material adverse effect on our business, financial condition and results of operations.winning business is subject to a competitive selection process that can be lengthy and requires us to incur significant expense, and we may not be selected. even after we win and begin a product design, a customer may decide to cancel or change its product plans, which could cause us to generate no sales from a product and adversely affect our results of operations. our primary focus is on winning competitive bid selection processes, known as design wins, to develop products for use in our customers equipment. these selection processes can be lengthy and can require us to incur significant design and development expenditures. we may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. because we typically focus on only a few customers in a product area, the loss of a design win can sometimes result in our failure to offer a generation of a product. this can result in lost sales and could hurt our position in future competitive selection processes because we may be perceived as not being a technology leader. after winning a product design for one of our customers, we may still experience delays in generating revenue from our products as a result of the lengthy development and design cycle. in addition, a delay or cancellation of a customers plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue. finally, if our customers fail to successfully market and sell their equipment it could materially adversely affect our business, financial condition and results of operations as the demand for our products falls.the success of our business may be dependent on our ability to maintain our third-party foundry relationships, and to increase utilization of foundry manufacturing and assembly and test capacity. as part of our asset-light strategy, we have reduced the number of our owned manufacturing facilities. since 2000, we have also sought to develop outsourcing arrangements for the manufacture and test and assembly of certain products and components. as a result, our products are manufactured in fewer owned facilities, and we are increasingly relying on the utilization of third-party foundry manufacturing and assembly and test capacity. in the event that manufacturing capacity is reduced or eliminated at one or more facilities, with fewer alternative facilities, manufacturing can be more easily disrupted, we could have difficulties fulfilling our customer orders, and our sales could decline. in addition, if these third parties on whom we are becoming increasingly reliant fail to deliver quality products and components on time and at reasonable prices, we could have difficulties fulfilling our customer orders, and our sales could decline. in such events, our business, financial condition and results of operations would be adversely affected. to the extent we rely on alliances and third-party design and/or manufacturing relationships, we face the following risks: inability of our manufacturing partners to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products; manufacturing costs that are higher than anticipated; decline in product reliability; inability to maintain continuing relationships with our suppliers; and reduced control over delivery schedules and product costs. 13 if any of these risks are realized, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue or adversely affect our business, financial condition and results of operations.if we cannot maintain our strategic relationships or if our strategic relationships fail to meet their goals of developing technologies or processes, we may lose our investment, and we may fail to keep pace with the rapid technological developments in our industry. in the past, we have entered into strategic relationships to develop technologies and manufacturing processes. for example, we share a research and fabrication plant for the manufacturing of 300 millimeter wafers in crolles, france with stmicroelectronics and philips electronics, and we founded and are an investor in starcore llc, a joint venture to develop an open digital signal processing architecture, with infineon technologies ag and agere systems inc. if any of our strategic relationships do not accomplish our intended goals, we may lose our investment, and we may fail to keep pace with the rapid technological developments in our industry.the demand for our products depends in large part on continued growth in the industries into which they are sold. a market decline in any of these industries could have a material adverse effect on our results of operations. we derive and expect to continue to derive significant sales from the communications equipment industry and the transportation industry. growth of demand in the communications equipment industry has in the past and may in the future fluctuate significantly based on numerous factors, including: capital spending levels of communications service providers; lack of industry standards; rate of adoption of new or alternative technologies; changes in regulation of communications services; and general economic conditions. we cannot assure you of the rate, or extent to which, the communications equipment industry will grow, if at all. any continued decline in this industry could result in slower growth or a decline in demand for our products, which could have a material adverse effect on our business, financial condition and results of operations. in recent years, our sales have lagged as compared to our competitors in the semiconductor industry, and our market share has declined. we believe that this is in large part because of our focus on the communications equipment industry. our automotive customer base is comprised largely of suppliers to u.s. and european automotive manufacturers. shifts in demand away from u.s. and european automotive manufacturers or lower demand for u.s. and european automobiles could adversely affect our sales. furthermore, projected industry growth rates may not be as forecast, resulting in spending on process and product development well ahead of market requirements, which could have a material adverse effect on our business, financial condition and results of operations.we may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-party technology, which could result in significant expense and loss of our intellectual property rights. the semiconductor industry is characterized by the vigorous pursuit and protection of intellectual property rights. from time to time, third parties may and do assert against us their patent, copyright, 14 trademark and other intellectual property rights to technologies that are important to our business. see businesslegal proceedings for a description of the significant proceedings in which we are currently involved. any claims that our products or processes infringe these rights (including claims arising through our contractual indemnification of our customers), regardless of their merit or resolution, could be costly and divert the efforts and attention of our management and technical personnel. we cannot assure you that we would prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. if such proceedings result in an adverse outcome, we could be required to: pay substantial damages; cease the manufacture, use or sale of the infringing products or processes; discontinue the use of the infringing technology; expend significant resources to develop non-infringing technology; license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms, or may not be available at all; or lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others. any of the foregoing results could have a material adverse effect on our business, financial condition and results of operations.we may not be successful in protecting our intellectual property rights or developing or licensing new intellectual property, which may harm our ability to compete and may have a material adverse effect on our results of operations. we generate revenues from our intellectual property. these revenues are generated from the license of patents and manufacturing technologies to third parties. our intellectual property revenues were approximately 3% of our revenues during 2001, 4% of our revenues during 2002, 3% of our revenues during 2003 and approximately 2% of our revenues during the first quarter of 2004. although we do not anticipate a loss of intellectual property revenue as a result of our separation from motorola, future intellectual property revenue depends in part on the continued strength of our intellectual property portfolio and enforcement efforts, and on the sales and financial stability of our licensees. we rely primarily on patent, copyright, trademark and trade secret laws, as well as on nondisclosure and confidentiality agreements and other methods, to protect our proprietary technologies. in the past, we have found it necessary to engage in litigation with other companies to force those companies to execute revenue-bearing license agreements with us or prohibit their use of our intellectual property. see businesslegal proceedings for a description of the current proceedings that we initiated to protect our proprietary technologies and processes. these proceedings, and future proceedings, may require us to expend significant resources and to divert the efforts and attention of our management from our business operations. we cannot assure you that: the steps we take to prevent misappropriation or infringement of our intellectual property will be successful; any of our existing or future patents will not be challenged, limited, invalidated or circumvented; or any of the measures described above would provide meaningful protection. despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, develop similar technology independently or design around our patents. if any of our patents fails to protect our technology, it would make it easier for our competitors 15 to offer similar products. in addition, effective copyright, trademark and trade secret protection may be unavailable or of limited usefulness in protecting our technology in certain jurisdictions in which we and our competitors compete.our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business, fluctuations in currency exchange rates and other factors related to our international operations. we sell our products throughout the world. in 2003, approximately 71% of our products were sold in countries other than the united states. in addition, a majority of our operations and employees are located outside of the united states. multiple factors relating to our international operations and to particular countries in which we operate could have a material adverse effect on our business, financial condition and results of operations. these factors include: changes in political, regulatory or economic conditions; trade protection measures and price controls; import or export licensing requirements; economic downturns, civil disturbances or political instability; currency restrictions; differing labor standards; differing protection of intellectual property; nationalization and expropriation; and potentially burdensome taxation and changes in foreign tax laws. international conflicts are creating many economic and political uncertainties that are impacting the global economy. a continued escalation of international conflicts could severely impact our operations and demand for our products. a majority of our products are manufactured in asia, primarily in china, japan, malaysia and taiwan. any conflict or uncertainty in these countries, including due to public health or safety concerns (such as severe acute respiratory syndrome) or natural disasters (such as earthquakes), could have a material adverse effect on our business, financial condition and results of operations. in addition, if the government of any country in which our products are manufactured or sold sets technical standards for products made in or imported into their country that are not widely shared, it may lead certain of our customers to suspend imports of their products into that country, require manufacturers in that country to manufacture products with different technical standards and disrupt cross-border manufacturing partnerships which, in each case, could have a material adverse effect on our business, financial condition and results of operations. we prepare our combined financial statements in u.s. dollars, but a portion of our earnings and expenditures are denominated in other currencies. changes in exchange rates will result in increases or decreases in our costs and earnings, and may also affect the book value of our assets located outside the united states and the amount of our equity. although we may seek to minimize our currency exposure by engaging in hedging transactions where we deem it appropriate, we cannot assure you that our efforts will be successful. to the extent we sell our products in foreign markets, currency fluctuations may result in our products becoming too expensive for foreign customers.we operate in a highly competitive industry and face competitors that may have greater resources or are more focused. the semiconductor industry is highly competitive. some of our competitors are large national and multinational companies that may have significantly greater financial resources than we do. like us, 16 many of our competitors offer a wide variety of products. if these competitors substantially increase the resources they devote to developing and marketing competitive products, we may not be able to compete effectively. any consolidation among our competitors could enhance their product offerings and financial resources, further enhancing their competitive position. in addition, some of our competitors operate in narrow business areas relative to us, allowing them to concentrate their research and development efforts directly on products and services for those areas, which may constitute a competitive advantage.if we fail to keep pace with technological advances in our industry or if we pursue technologies that do not become commercially accepted, customers may not buy our products and our business, financial condition and results of operations may be adversely affected. technology is an important component of our business and growth strategy, and our success depends to a significant extent on the development, implementation and acceptance of new product designs and improvements. our ability to develop products and related technologies to meet evolving industry requirements and at prices acceptable to our customers will be significant factors in determining our competitiveness in our target markets. in particular, to stay competitive, we must transition certain products to 300 millimeter manufacturing technology. currently, most semiconductor manufacturing facilities, or fabs, process wafers with diameters of 150 millimeters or 200 millimeters. however, as industry technology continues to improve, we expect that a significant portion of new fabs and leading edge semiconductor manufacturing equipment will be configured for 300 millimeter wafers. our transition to this technology requires access to 300 millimeter manufacturing capacity. we intend to access this technology through foundry or other alliances such as our alliance with stmicroelectronics and philips electronics in crolles, france. if we are unable to access, or are delayed in accessing, this technology, our ability to develop new products could suffer, which could, in turn, have a material adverse effect on our business, financial condition and results of operations.we intend to issue notes concurrently with this offering and to enter into debt arrangements in the future, each of which may subject us to restrictive covenants which could limit our ability to operate effectively in the future. concurrently with the completion of this offering, we expect to issue an aggregate of $1.25 billion of notes through a private placement to qualified institutional buyers in reliance on the exemption from registration provided by rule 144a and in offshore transactions to persons other than u.s. persons as defined in regulation s under the securities act of 1933, as amended. the notes will be governed by an indenture, which will impose various restrictions and covenants on us which could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. the notes will also require us to pay interest, which will decrease our profitability in the future. in addition, in the future we may incur indebtedness through arrangements such as credit agreements and/or term loans, which may also impose various restrictions and covenants on us which could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. any debt arrangements we enter into will likely require us to make regular interest payments, which would decrease our profitability.we may not be successful in establishing a brand identity. historically, we have conducted our business under motorolas brand name. we are currently conducting our business under our new brand name, freescale. the value of motorolas brand name was recognized by our customers, suppliers and potential employees. we will need to expend 17 significant time, effort and resources to establish our new brand name in the marketplace. we cannot guarantee that this effort will ultimately be successful. if our effort to establish a new brand identity is unsuccessful, our business, financial condition and results of operations may suffer.our ability to meet customer demand depends, in part, on obtaining supplies and a reduction in supplies could negatively impact our business. our ability to meet customer demands depends, in part, on our ability to obtain timely and adequate delivery of materials, parts and components from our suppliers. we have experienced shortages in the past that have adversely affected our operations. although we work closely with our suppliers to avoid these types of shortages, there can be no assurances that we will not encounter these problems in the future. a number of our supplies are obtained from one source. a reduction or interruption in supplies or a significant increase in the price of one or more supplies could have a material adverse effect on our business, financial condition and results of operations.we intend to engage in acquisitions, joint ventures and other transactions that may complement or expand our business. we may not be able to complete such transactions and such transactions, if executed, pose significant risks and could have a negative effect on our operations. our future success may be dependent on opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. we may not be able to complete such transactions, for reasons including, but not limited to, a failure to secure financing, as a result of our agreements with motorola or as a result of restrictive covenants in our debt instruments. see arrangements between freescale semiconductor and motorola for a description of some of the restrictions on our ability to take advantage of these opportunities. any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of our managements attention from our existing business to integrate the operations and personnel of the acquired or combined business or joint venture; possible adverse effects on our operating results during the integration process; and our possible inability to achieve the intended objectives of the transaction. in addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. we may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies.our cost-reduction efforts could adversely affect our business. since the second half of 2000, we have been reducing costs and simplifying our product portfolios in our business. we have discontinued product lines, exited businesses, consolidated manufacturing facilities and reduced the total number of our employees by approximately 11,700. if these efforts do not generate the level of cost savings we expect and/or that are necessary to enable us to effectively compete, they may have a material adverse effect on our business, financial condition and results of operations.we are subject to environmental, health and safety laws, which could increase our costs and restrict our operations in the future. we are subject to a variety of laws relating to the use, disposal, clean-up of, and human exposure to, hazardous materials. any failure by us to comply with environmental, health and safety 18 requirements could result in the limitation or suspension of production or subject us to future liabilities in excess of our reserves. in addition, compliance with environmental, health and safety requirements could restrict our ability to expand our facilities or require us to acquire costly pollution control equipment, incur other significant expenses or modify our manufacturing processes. in the event of the discovery of new contamination, additional requirements with respect to existing contamination, or the imposition of other cleanup obligations for which we are responsible, we may be required to take remedial or other measures which could have a material adverse effect on our business, financial condition and results of operations. for a description of environmental matters in which we are currently involved, see businessenvironmental matters. in addition to the costs of complying with environmental, health and safety requirements, we have incurred and may in the future incur costs defending against environmental litigation brought by government agencies and private parties. we may be defendants in lawsuits brought by parties in the future alleging environmental damage, personal injury or property damage. a significant judgment against us could harm our business, financial condition and results of operations. in the last few years, there has been increased media scrutiny and associated reports focusing on a potential link between working in semiconductor manufacturing clean room environments and certain illnesses, primarily different types of cancers. regulatory agencies and industry associations have begun to study the issue to see if any actual correlation exists. because we utilize these clean rooms, we may become subject to liability claims. in addition, these reports may also affect our ability to recruit and retain employees.our products may be subject to product liability claims, which could be expensive and could divert managements attention. our semiconductors are incorporated into a number of end products. we face an inherent exposure to product liability claims if our semiconductors (or the equipment into which our semiconductors are incorporated) malfunction and result in personal injury or death. we may be named in product liability claims even if there is no evidence that our products caused a loss. product liability claims could result in significant expenses relating to defense costs or damages awards. in particular, the sale of systems and components for the transportation industry involves a high degree of risk that such claims may be made. in addition, we may be required to participate in a recall if any of our systems prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or in order to maintain good customer relationships. each of these actions would likely harm our reputation and lead to substantial expense. any product liability claim brought against us could have a material adverse effect on our reputation, business, financial condition and results of operations.our industry is highly capital intensive and, if we are unable to obtain the necessary capital, we may not remain competitive. semiconductor manufacturing requires a constant upgrading of facilities and process technology to remain competitive. we intend to meet our capital needs through a variety of sources, including the capital markets. if we are unable to obtain capital on favorable terms, or if we are unable to obtain capital at all, it may have a material adverse effect on our business, financial condition and results of operations.loss of our key management and other personnel, or an inability to attract such management and other personnel, could impact our business. we depend on our senior executive officers and other key personnel to run our business. with the exception of our chief executive officer, we do not have long-term retention contracts with our key 19 personnel. the loss of any of these officers or other key personnel could adversely affect our operations. competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities successfully and develop marketable products. risks related to our relationship with motorolaour historical financial results as a business segment of motorola may not be representative of our results as a separate, stand-alone company. the historical financial information we have included in this prospectus has been derived from motorolas consolidated financial statements and does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been a separate, stand-alone company during the periods presented. although motorola did account for our company as a business segment, motorola did not account for us, and we were not operated, as a separate, stand-alone company for the historical periods presented. the historical costs and expenses reflected in our combined financial statements include an allocation for certain corporate functions historically provided by motorola, including general corporate expenses, basic research costs, employee benefits and incentives, and interest expense. these allocations were based on what we and motorola considered to be reasonable reflections of the historical utilization levels of these services required in support of our business. the historical information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future. our pro forma adjustments reflect changes that may occur in our funding and operations as a result of the separation. however, there can be no assurances that these adjustments will reflect our costs as a publicly-traded, stand-alone company. for additional information, see combined financial statements, interim unaudited condensed combined financial statements, managements discussion and analysis of financial condition and results of operations, selected combined financial data, unaudited pro forma combined financial data and the notes to those statements included elsewhere in this prospectus.we may lose rights to key intellectu | 1 | < 0.1% | |
| RISK FACTORS An investment in the shares of Common Stock being offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, potential purchasers should consider carefully the following risk factors in evaluating the Company, its business, and the shares of Common Stock offered hereby. This Prospectus contains certain forward-looking statements concerning certain aspects of the business of the Company. When used in this Prospectus, words such as "believe," "anticipate," "intend," "goal," "expect" and similar expressions may identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements, including, without limitation, those set forth in the following risk factors and elsewhere in this Prospectus. Prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Prospectus. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors. FLUCTUATIONS IN DEMAND AND ANNUAL AND QUARTERLY OPERATING RESULTS The Company has experienced and may continue to experience significant annual and quarter-to-quarter fluctuations in its operating results. The Company's annual and quarterly operating results may fluctuate as a result of a variety of factors including: (i) customer demand, such as general economic conditions in the FPD industry, market acceptance of products of both the Company and its customers, changes in product mix, and the timing, cancellation or delay of customer orders and shipments; (ii) competition, such as competitive pressures on prices of the Company's products, as well as those of its customers, and the introduction or announcement of new products by competitors; (iii) manufacturing and operations, such as fluctuations in availability and cost of raw materials and production capacity, the transfer of equipment and personnel to the Company's new manufacturing facilities, and the hiring and training of additional staff; (iv) fluctuations in foreign currency exchange rates; (v) new product development, such as increased research, development and engineering, as well as marketing expenses associated with new product introductions and the Company's ability to introduce new products and technologies on a timely basis; (vi) sales and marketing, such as concentration of customers and discounts that may be granted to certain customers; and (vii) the cyclical nature of the capital equipment market. Because a significant portion of the Company's overhead is fixed, at least in the short-term, the Company's results of operations may be materially adversely affected if net sales decline for any reason. Further, although the Company has achieved productivity improvements in recent quarters, there can be no assurance of any future productivity improvements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations. HIGHLY COMPETITIVE MARKET ENVIRONMENT Competition in the thin film coated glass for the LCD market is, and is expected to remain, intense. Several of the Company's competitors have substantially greater financial, technical, marketing and sales resources than the Company. There can be no assurance that the Company's present or future competitors will not exert increased competitive pressures on the Company. In particular, the Company may in the future experience pricing pressures as a result of a decline in industry demand, excess inventory levels, increases in industry capacity or the introduction of new technologies, and such price competition could adversely affect the Company's business, operating results, financial condition and prospects. For example, prices for much of the Company's TN thin film coated glass supplied to the LCD market declined by approximately 15% between January 1996 and June 1997. The Company is aware of plans by several competitors to increase production capacity in 1997 and 1998. Increases in industry capacity may result in intensified pricing pressures on the Company's products. The Company's competitive position also could be adversely affected by raw material price increases, which the Company may not be able to pass on to its customers but which certain of its vertically integrated current and potential competitors may be able to better absorb. To remain competitive, the Company must continue to invest in and focus upon research and development, product and process 5 6 innovation, as well as sales and customer support. There can be no assurance that the Company will be successful in such efforts or that such factors will not have a material adverse effect on the Company's business, operating results, financial condition or prospects. The Company's suppliers and/or customers could vertically integrate to manufacture the products produced by the Company. The Company's suppliers of thin glass are large, well-capitalized companies which could enter the LCD market by coating the glass they produce and supplying LCD manufacturers directly. Because glass is by far the Company's largest material cost, a manufacturer of glass desiring to enter this market could have a significant cost advantage. The Company is aware of two manufacturers of thin glass that also coat glass for the LCD market, Asahi Glass Company and Nippon Sheet Glass. Further, companies that manufacture equipment for coating thin film glass could begin producing thin film coated glass. One such equipment manufacturer, Balzers Process Systems/Leybold AG, is an investor in a Chinese joint venture which produces thin film coated glass. In addition, certain LCD manufacturers have vertically integrated to coat glass for LCDs and further vertical integration into certain areas of LCD manufacturing is expected. Any such vertical integration could have a material adverse effect on the Company's business, operating results, financial condition and prospects. See "Business -- Competition.UNCERTAINTIES RELATED TO COATING EQUIPMENT BUSINESS Until recently, the Company's business has been focused almost exclusively on the sale of thin film coated glass. Although the Company expects to continue to produce and sell thin film coated glass to the world FPD market, the Company's future growth potential depends in part upon the Company's success in the market for thin film systems. Sales of the Company's thin film systems depend in large part upon a prospective customer's decision to increase manufacturing capabilities and capacities or to respond to consumer demands for greater cost efficiencies by upgrading or expanding existing manufacturing facilities or constructing new manufacturing facilities, all of which typically involve significant capital expenditures. Further, customers for the Company's thin film coated glass could decide to purchase thin film systems to bring some or all of their thin film coated glass requirements in-house, thus adversely affecting sales of thin film coated glass by the Company to such customers. The Company is currently building systems for two such customers. Systems sales also may be affected by changes in the market for different types of displays and customers' decisions to begin internal production of glass coatings rather than rely on an outside supplier such as the Company. The sales cycle of the Company's thin film coating systems is lengthy due to the customer's evaluation of its ordered system and completion of any necessary upgrades, expansion or construction of facilities. The Company may expend substantial funds and management effort during the sales cycle. In addition, the cyclicality and rapid technological change in the thin film coated glass industry may cause prospective customers to postpone decisions regarding major capital expenditures, such as the Company's systems. With respect to the development of its systems business, the Company is subject to the risks inherent in the operation or the development of a new business, including risks associated with attracting and servicing a customer base, manufacturing products in a cost-effective and profitable manner, managing the expansion of a business operation and attracting and retaining qualified engineering, manufacturing and marketing personnel. Because of rapid changes in the FPD market, which are expected to continue, it is difficult to predict whether or where future growth may occur, or at what rate certain aspects will grow, if at all. Further, changes in technology could render the Company's systems less attractive. If the market for the Company's thin film systems fails to grow, or grows more slowly than anticipated, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "Business -- Competition.INTERNATIONAL MARKETS Sales to international customers represented approximately 84%, 82% and 83% of the Company's gross sales in fiscal 1995, 1996 and 1997, respectively. The Company's principal international markets are China (including Hong Kong), Korea, Japan, Taiwan and the Netherlands. The Company believes that international sales will continue to represent a significant portion of its gross sales, and that it will be subject to the normal risks of conducting business internationally, including unexpected changes in regulatory requirements, imposition of government controls, political and economic instabilities, export license requirements, foreign exchange risks, tariffs and other barriers, difficulties in staffing and managing foreign sales operations 6 7 potentially adverse tax consequences. In addition, the laws of certain foreign countries may not protect the Company's proprietary rights to the same extent as do the laws of the United States. See "Business -- Proprietary Rights." Other risks inherent in the Company's international business include greater difficulties in accounts receivable collection, the potential of protective trade activities or laws and the burdens of complying with a wide variety of foreign laws. See "Business -- Sales, Marketing, and Customers." The Company's business, operating results, financial condition or growth could be materially adversely affected by these risks. The Company's international sales are generally denominated in dollars, although a portion of its sales to Japanese customers are denominated in yen. In fiscal 1997, approximately 13% and 87% of the Company's total gross sales were denominated in yen and dollars, respectively. Any strengthening of the dollar in relation to the currencies of the Company's competitors or customers could adversely affect the Company's competitiveness. Although a strengthening dollar may result in some offsetting cost reductions on the raw materials imported by the Company, there can be no assurance that such cost reductions would enable the Company to remain competitive. Moreover, a strengthening of the dollar or other competitive factors could put pressure on the Company to denominate a greater portion of its Japanese sales in yen, thereby increasing the Company's exposure to fluctuations in the dollar-yen exchange rate. There can be no assurance that fluctuations in exchange rates will not adversely affect the Company's competitive position or result in foreign exchange losses, either of which could materially adversely affect the Company's business, operating results, financial conditions and prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview.LIMITED SOURCES OF SUPPLY There are relatively few manufacturers of thin glass, which raw material accounts for a majority of the Company's materials cost. The Company currently relies primarily on four glass suppliers, Pilkington Micronics, Ltd., Glaverbel Societe Anonyme, Central Glass Co., Ltd., and Nippon Sheet Glass Co., Ltd., all of which are located outside the United States. The Company does not have long-term supply contracts with any of these suppliers, and thus has no contractual assurance of a firm price over an extended term or of a long-term commitment to supply product. In periods of short supply, the Company could have difficulty obtaining the necessary quantities of glass at a competitive cost. Further, the Company operates on a "just-in-time" inventory basis in ordering its glass and other materials and therefore maintains only limited inventories, increasing the operating risks associated with supply interruptions. Such interruptions could occur for numerous reasons, including labor difficulties at some point in the chain of manufacturing or distribution. In addition, the Company may not be able to pass raw material price increases along to its customers, especially in periods of soft demand for the Company's products or excess capacity. Current and potential competitors of the Company that both manufacture and coat glass could be able to better absorb such raw material cost increases due to their vertical integration. If the Company were to experience significant delays, interruptions, or shortages in its material supply or material supplier price increases, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "Business -- Suppliers.RAPID TECHNOLOGICAL CHANGE The market for thin film coated glass is characterized by rapid change. The Company's future success depends upon its ability to introduce new products, improve existing products and processes to keep pace with technological and market developments, and to address the increasingly sophisticated and demanding needs of its customers. In order to remain competitive, the Company believes it must continue to invest in research and development. The Company expects to increase its research and development expenditures in fiscal 1998 which could adversely affect fiscal 1998 operating results. Technological changes, process improvements or operating improvements which could adversely affect the Company include: (i) development of new technologies which improve manufacturing efficiency of the Company's competitors; (ii) changes in product requirements of the Company's customers; (iii) significant changes in the way coatings are applied to glass for LCDs; and (iv) other changes such as improvements in the design of cathodes. If the Company does not adapt to such changes or improvements the Company's competitive position, operations and prospects would 7 8 be materially, adversely affected. In addition, there are alternative technologies to sputtering technology for three of the thin film coating layers used in PDPs. Materials applied by the Company to thin glass to provide conductivity or other properties are generally available and are not patented. Development of a new material which improves the performance of thin film coated glass and better addresses customer needs could, if not adopted by the Company, have a material adverse effect on the Company's operations and prospects. There can be no assurance that the Company will be successful in meeting the demands of the marketplace or that one or more of these factors will not have a material adverse effect on the Company's business, operating results, financial condition or prospects. See "Business -- Products and Manufacturing.EVOLVING FPD MARKET The Company believes that much of the growth in the FPD market will be in higher information content FPDs, such as STN LCDs, active matrix LCDs ("AM LCDs"), and PDPs. See "Business -- Products and Manufacturing." During fiscal 1997 less than 10% of the Company's coated glass revenues were derived from the sale of coated glass used in higher information content FPDs. Due in part to strong customer demand for thin film coated glass for lower information content displays, the Company has to date directed most of its production capacity to the TN coated glass which is presently used in such displays. While the Company has recently made and is making investments in additional production capacity for STN coated glass, there can be no assurance that the Company will be able to successfully expand its position in the market for thin film coated glass for higher information content FPDs. A reduction in the market for thin film coated glass for TN LCDs as a result of a shift in demand toward higher information content displays could materially adversely affect the Company's results of operations and could be to the advantage of competitors of the Company who may currently have greater capacity to produce thin film coated glass for STN or AM LCDs. This could affect the Company's operating results while it transfers resources to the manufacture of thin film coated glass for STN LCDs. See "Business -- Strategy" and "-- Products and Manufacturing." The Company's business depends substantially on the purchasing requirements of manufacturers of FPDs, which, in turn, depend upon the current and anticipated market demand for FPDs. Sales of thin film coated glass to these manufacturers are expected to continue to represent a significant portion of the Company's net sales. Although the market for FPDs has experienced significant growth, there can be no assurance that such growth will continue at current rates or at all, or that any growth will have a positive impact on the Company's future business or results of operations. The Company's business, operating results, financial condition and prospects would be materially adversely affected by any future downturns in the FPD market. DEPENDENCE ON KEY CUSTOMERS; LIMITED NUMBER OF CUSTOMERS The Company's ten largest customers accounted for, in the aggregate, approximately 63%, 56% and 59% of the Company's gross sales in fiscal years 1995, 1996 and 1997, respectively. The loss of, or a significant reduction of purchases by, one or more of these customers would materially adversely affect the Company's business, operating results, financial condition and prospects. The Company expects that sales of its products to relatively few customers, particularly in the LCD market, will continue to account for a high percentage of its revenue in the foreseeable future. In addition, in the LCD market, there are a limited number of potential customers. The Company has not entered into long-term agreements with its customers and none are obligated to continue to buy their thin film coated glass from the Company. Moreover, in the event that customers purchase thin film systems from the Company or one of its competitors and begin coating the glass in-house, sales to those customers may decrease sharply. If such lost sales are not replaced on a timely basis by new orders of thin film coated glass or capital equipment from other customers, the Company's business, operating results, financial condition and prospects could be materially adversely affected. See "--Fluctuations in Demand and Annual and Quarterly Operating Results" and "Business -- Sales, Marketing, and Customers.MANAGEMENT OF GROWTH In order to support potential future growth, the Company will need to expand its facilities, improve its productivity, add additional production lines, enhance its management information systems and add additional 8 9 management personnel. There can be no assurance that the Company will continue to grow or be effective in managing its future growth, expanding its facilities and operations or attracting and retaining additional qualified personnel. Any failure to effectively manage growth, expand its operations or attract and retain personnel could have a material adverse effect on the Company's business, operating results, financial condition, and prospects. See "-- Fluctuations in Demand and Annual and Quarterly Operating Results" "-- Dependence on Management and Other Key Personnel," and "Business -- Employees.DECLINING AVERAGE SELLING PRICES; DEPENDENCE UPON PRODUCTIVITY IMPROVEMENTS Many of the Company's customers are under continuous pressure to reduce prices and, therefore, the Company expects to continue to experience downward pricing pressures on its thin film coated glass products. The Company is frequently required to commit to price reductions before it has determined that assumed cost reductions can be achieved. To offset declining average sales prices, the Company must achieve manufacturing efficiencies and cost reductions and obtain orders for higher volume products. If the Company is unable to offset declining average sales prices, the Company's gross margins will decline, and such decline will materially adversely affect the Company's business, operating results, financial condition and prospects. See "-- Fluctuations in Demand and Annual and Quarterly Operating Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company has improved its manufacturing productivity in recent years, enabling increased capacity and sales. The continued growth of the Company is substantially dependent upon the Company's ability to continue to improve the productivity of its existing manufacturing assets. The inability of the Company to improve productivity could have a material adverse effect on the Company's business, operating results, financial condition and prospects. DEPENDENCE ON MANAGEMENT AND OTHER KEY EMPLOYEES The Company's success during the foreseeable future will depend largely upon the continued services of its executive officers, and certain other key employees. These executive officers and key employees include: President and Chief Executive Officer, Cecil Van Alsburg; Chief Operating Officer and Executive Vice President, Thomas Edman; Vice President -- Research, John S. Chapin; Vice President -- Engineering, C. Richard Condon; Vice President -- Operations -- Thin Film Coatings, Mark Auble; Vice President -- Sales and Marketing, Graeme Hennessey; Chief Financial Officer, Thomas D. Schmidt; Director of Operations -- Thin Film Systems, Russell W. Black; and Advanced Development Manager, John J. Kester. The loss of the services of one or more of the executive officers or other key employees could materially adversely affect the Company's business. Cecil Van Alsburg, the Company's President and Chief Executive Officer, presently intends to transition day-to-day management responsibility for the Company to Thomas Edman, the Company's current Chief Operating Officer and Executive Vice President, over the next 18 months. The Company does not have employment agreements or key-man life insurance on any of its executive officers or other key employees. The Company's future success will be dependent in part upon the Company's ability to attract and retain additional qualified managers, engineers and other employees. The Company's business, operating results, financial condition or growth could be materially adversely affected if the Company were unable to attract, hire, assimilate, and train these employees in a timely manner. See "Business -- Employees" and "Management.NEW FACILITY EXPANSION The establishment of the Company's new manufacturing facility and the development and implementation of additional production lines will entail risks related to new production facilities and will require an investment of the Company's capital. As part of its manufacturing expansion, the Company will need to hire and train a substantial number of new manufacturing workers. The availability of skilled and unskilled workers in the Denver metropolitan area, the site of the Company's new manufacturing facility, is limited due to a relatively low unemployment rate. There can be no assurance that the Company will successfully develop improved processes, implement additional production lines or successfully operate its new facility. There can be no assurance that the Company will be able to successfully complete construction of its new manufacturing facility on a timely basis or at all, or that such new facility will result in greater manufacturing capacity or 9 10 lower manufacturing costs than those currently experienced by the Company. The Company will incur duplicate facilities and operating costs during its transition from its existing manufacturing facility to its new manufacturing facility. In addition, the Company will incur certain start-up expenses at the new facility and may experience interruptions in production during such transition. These factors will adversely affect the Company's fiscal 1998 operating results, and may adversely affect fiscal 1999 operating results. Failure to open its new manufacturing facility and increase capacity on a timely basis could damage customer relationships, cause lost opportunities and have a material adverse effect on the Company's business, results of operations and financial condition. See "Use of Proceeds" and "Business -- Facilities.SUBSTANTIAL CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS Upon completion of this offering, the Company's officers, directors and their affiliates will retain voting control of approximately 42% of the Company's Common Stock (38% if the underwriters' over-allotment option is exercised in full). As a result, these shareholders, acting together, would be able to influence the outcome of actions requiring shareholder approval, such as the election of directors, amendments to the Company's articles of incorporation, mergers and other actions by shareholders with respect to the business and affairs of the Company. In addition, the voting power of these shareholders under certain circumstances could have the effect of delaying or preventing a change in control of the Company. See "Management," "Principal and Selling Shareholders" and "Description of Capital Stock.LIMITED PROTECTION OF PROPRIETARY RIGHTS The Company relies primarily upon trade secret laws and employee and third-party nondisclosure agreements to protect its proprietary technology. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of such rights or that third parties will not independently develop a functional equivalent or superior technology. The Company is not aware that its products or other proprietary rights infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not require the Company to enter into license agreements or result in protracted and costly litigation, regardless of the merits of such claims. In addition, there can be no assurance that the Company will be able to obtain licenses to dispute a third-party technology or that such licenses, if available, would be available on commercially reasonable terms. There can be no assurance that these factors will not adversely affect the Company's business, operating results, financial condition or growth. See "Business -- Proprietary Rights.ENVIRONMENTAL REGULATIONS The Company uses hazardous chemicals in producing its products. As a result, the Company is subject to a variety of local, state and federal governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. GENERAL ECONOMIC CONDITIONS A deterioration in the level of consumer confidence and general economic conditions could result in a decline of purchases and production by the Company's customers and thus have an adverse effect on the sale of the Company's products. A high percentage of the Company's products are used in LCDs for many consumer electronic products. In addition, the Company's products are used in certain displays used for commercial and industrial purposes. Unfavorable economic conditions or factors that relate to these industries, particularly any conditions that might result in reductions in capital expenditures by end customers, could have a material adverse effect on the Company's business, operating results, financial conditions or growth. See "Business -- Products and Manufacturing.ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE Prior to this offering there has been no public market for the Company's Common Stock and there can be no assurance that following this offering an active trading market will develop or be maintained. The initial 10 11 public offering price was determined by negotiations among the Company, the Selling Shareholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market following this offering. For a description of the factors considered in determining the initial public offering price, see "Underwriting." In addition, the stock market has historically experienced volatility which has particularly affected the market prices of securities of many technology-based companies and which sometimes has been unrelated to the operating performances of such companies. Factors such as announcements of technological developments for products by the Company or its competitors, fluctuations in foreign exchange rates, variations in the Company's quarterly operating results, or general, economic or stock market conditions may significantly impact the market price of the Common Stock after this offering. Furthermore, any adverse changes in the market price of common stock of other similar companies may adversely affect the market price of the Company's Common Stock, irrespective of whether there has been any deterioration in the Company's business, operating results, financial condition or prospects. ANTITAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK The Company's Articles of Incorporation and Bylaws contain provisions which may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price of the Common Stock and the voting and other rights of the holders of the Common Stock. These provisions include, but are not limited to, a classified Board of Directors, fair price provisions and the authority of the Board to issue up to 1,000,000 shares of preferred stock and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without further vote or action by the Company's shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The Company has no present plans to issue shares of preferred stock. See "Description of Capital Stock.SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the 1,900,000 shares of Common stock offered hereby (2,185,000 shares of Common Stock if the underwriters' over-allotment is exercised in full), will be freely tradable by persons other than "affiliates" of the Company without restriction. The remaining 1,399,998 shares of Common Stock held by officers, directors and existing shareholders of the Company (1,351,437 shares if the underwriters' over-allotment is exercised in full) are subject to "lockup" agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any shares of Common Stock without the prior written consent of Needham & Company, Inc., for a period of 180 days after the date of this prospectus. Such shares of Common Stock will be eligible for resale after the expiration of the lockup period, subject to the provisions of Rule 144 under the Securities Act of 1933, as amended (the "Act"). In addition, the Company intends to file registration statements under the Act covering the sale of 479,000 shares of Common Stock reserved for issuance under the Company's 1993 Stock Option Plan, 1997 Stock Option Plan and the 1997 Employee Stock Purchase Plan. Shares acquired through the exercise of options by parties to lockup agreements will be subje | 1 | < 0.1% | |
| RISK FACTORS The following factors should be considered, together with the other information in this Prospectus, in evaluating an investment in the Company. This Prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from the results discussed in the forward-looking statements as a result of any number of factors, including the risk factors set forth below and other factors discussed elsewhere in this Prospectus.LIMITED COMBINED OPERATING HISTORY BridgeStreet was founded in August 1996 to acquire flexible accommodation service providers and has only conducted combined operations since the Combination in the first quarter of 1997. Prior to the Combination, each of the Founding Companies operated (together with any affiliates) as a separate, independent entity. The Company intends to continue to operate the FoundingCompanies under their current management, although it will integrate some sales, marketing and purchasing operations, implement centralized financial and management information systems and controls, and implement "best practices" throughout its operations. The Company's senior management group has been assembled only recently, and there can be no assurance that this group will be successful in the Company's integration and implementation efforts, in managing the combined operations of the Founding Companies or in implementing theCompany's business strategy. Any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management." RISKS ASSOCIATED WITH ACQUISITION STRATEGY AND PLANNED RAPID EXPANSION As part of its strategy to establish a nationwide presence, the Company initially has targeted the following markets within which to expand its operations: Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, NewYork, Philadelphia, Phoenix, San Francisco, Seattle, Tampa, Toronto and Vancouver. BridgeStreet intends to grow in part through the acquisition of additional flexible accommodation service providers in these and other major metropolitan markets throughout the United States. However, in cases where the Company seeks to enter a new market but is unable to acquire a suitable existing provider on terms the Company deems acceptable, the Company may elect to establish a new operation or strategic alliance in that market. The Company also intends to pursue rapid internal growth through expansion of existing and acquired operations. See "Business -- Growth Strategy" and "-- Acquisition andExpansion Strategy." There can be no assurance that the Company will be successful in entering any market which it has targeted for expansion. There also can be no assurance that the Company will be able to identify, acquire or profitably manage additional businesses in existing or targeted expansion markets or successfully integrate any acquired businesses into the Company without substantial costs, delays or other operational or financial problems. Certain risks inherent in an acquisition strategy, such as increasing leverage and debt service requirements (to the extent that the Company elects to finance its acquisitions with debt) and difficulties associated with combining disparate company systems and cultures, could adversely affect the Company's ability to integrate acquired businesses. The process of integrating acquired companies may involve unforeseen difficulties and may require a disproportionate amount of management's attention and financial and other resources. Moreover, increased competition for acquisition candidates may develop, in which event fewer acquisition opportunities may be available to the Company and acquisition costs for the opportunities that are available may be higher. There can be no assurance that any business acquired in the future will achieve anticipated revenues and earnings. In addition, the size, timing and integration of such acquisitions may cause substantial fluctuations in the Company's operating results from quarter to quarter. To the extent that the Company chooses to enter particular markets by establishing new operations, its results may be adversely affected by the increased time required for such operations to achieve profitability. Future internal growth will depend on a number of factors, including the effective and timely initiation and development of client relationships, the availability of additional accommodations on acceptable terms, the maintenance of the high quality of services the Company provides to its guests, and the recruitment, training, motivation and retention of qualified employees. 8 9 Sustaining the Company's growth and expansion will require substantial enhancements to the Company's operational and financial systems and controls as well as additional administrative, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations successfully or that it will be able to maintain or accelerate its growth, and any failure to do so could have a material adverse effect on theCompany's business, financial condition and results of operations. RISKS RELATED TO ACQUISITION FINANCING The Company may choose to finance future acquisitions by issuing shares of Common Stock for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates otherwise are unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company might not be able to utilize Common Stock as consideration for acquisitions and would be required to utilize more of its cash resources, if available, in order to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it could obtain additional capital through debt or equity financings. While the Company currently has a $10 million revolving credit facility to finance acquisitions, there can be no assurance that this credit facility will be sufficient for the Company's acquisition financing needs in the near term, or that additional financing will be available if and when needed or on terms acceptable to the Company. See "Management'sDiscussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- BridgeStreet." The inability of the Company to use its Common Stock as consideration for future acquisitions or to obtain additional financing for acquisitions could have a material adverse effect on the Company's business, financial condition and results of operations.In addition, there can be no assurance that future issuances of Common Stock in connection with acquisitions will not be dilutive to the Company's stockholders. MARKET ACCEPTANCE OF BRAND NAME BridgeStreet has yet to complete the integration of the Founding Companies and, as a result, has limited history upon which to gauge client acceptance of its combined operations. Further, the Company will compete against other companies with substantially greater brand name recognition, and there can be no assurance that the Company will be able to persuade clients of such competitors to use the Company's services. The failure of the Company to successfully establish and promote "BridgeStreet" as a recognized brand name capable of attracting sufficient numbers of clients, or the receipt of adverse publicity relating to the Company's brand name, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Sales and Marketing" and "-- Competition."DEPENDENCE ON THIRD PARTIES BridgeStreet generally leases its accommodations from residential property managers. The Company's profitability largely depends on its ability to lease accommodations on favorable terms, and local or regional declines in either vacancy rates or new apartment construction could lead to an increase in leasing costs or an inability to satisfy client demand. The Company also leases the furniture used in its accommodations from furniture rental companies, which may increase their prices, restrict the Company's flexibility in renting greater or lesser amounts of furniture, or otherwise impose unfavorable conditions on theCompany's ability to customize the furnishings in its accommodations. The Company's reliance on third party vendors, assuming the occurrence of any of the events described above, would negatively affect the Company's operating margins and could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Properties" and " -- Accommodations and Services."MARKET CONDITIONS MAY AFFECT PROFITABILITY The Company's operating results depend primarily on the difference, or "spread," between the rental rates it charges its clients for accommodations and the lease amounts it pays to the owners or managers of such accommodations. The rates that the Company is able to charge its clients in a given market can be expected to fluctuate based in part on conditions existing within the lodging industry as a whole, including the 9 10 occupancy rates of, and average daily rates being charged by, hotels and other competitors. To the extent competitors in a given market were to exert downward pressure on the rates that the Company is able to charge its clients, theCompany's aggregate "spread" could decrease. In addition, while the Company seeks to manage the risks of fluctuating rates by "matching" its rental obligations with the length of its clients' stays through flexible lease arrangements, competitive rental market conditions could force the Company to enter into longer-term, fixed rate leases in order to establish or protect its unit inventory. The fixed rates in such leases also might lead to a reduction in the Company's "spread" in the event of downward trends in lodging prices. A reduction in the Company's "spread," as a result of either lower average daily rates charged by competitors or longer-term leases entered into by the Company, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Industry Overview" and "Management's Discussion and Analysis of Financial Condition and Results ofOperations." FACTORS AFFECTING TRAVEL, SEASONALITY AND CYCLICALITY The Company's operations are subject to events generally affecting levels of business and leisure travel, including business cycles, political changes and technological advances. The Company cannot predict the likelihood of occurrence of any such events. To the extent any such event significantly reduces travel, there could be a material adverse effect on the Company's business, financial condition and results of operations. The Company typically experiences a decline in earnings during its first quarter due to a decrease in business travel following the holiday season and travel disruptions caused by winter weather. As a general matter, due to (i) the Company's reliance on corporate clients and (ii) the strong correlation between the lodging industry's performance and macroeconomic conditions, the Company may be subject to cyclical changes in revenues and profits in response to changes in the national economy or the economies of the regions in which it operates. See "Management's Discussion ofFinancial Condition and Results of Operations -- Seasonality." COMPETITION The lodging industry generally, and the flexible accommodation services industry in particular, is highly competitive. Providers of flexible accommodation services compete with each other and with traditional hotels, motels, and all-suite and extended-stay hotels, primarily on the basis of location, availability, price and quality of accommodations, brand name recognition, and quality and scope of service. The Company competes with other flexible accommodation service providers both for clients and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and new competitors enter the industry. Moreover, because the financial barriers to entry are relatively low in the flexible accommodation services industry, entities that maintain a vendor-vendee relationship with companies in this industry, such as real estate managers or furniture rental businesses, have entered the industry and more such entities may decide to enter the industry in the future. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. In particular, Oakwood Corporate Housing, Inc. ("Oakwood"), a flexible accommodation services provider which currently rents a substantially larger number of accommodations than the Company, is affiliated with R&B Realty Group, the nation's tenth largest apartment management company. This affiliation givesOakwood access to apartment communities and capital that may be unavailable to the Company. Competitive market conditions could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition." DEPENDENCE ON KEY PERSONNEL BridgeStreet's day-to-day operations depend on the continuing efforts of its executive officers and the senior management of the Company's operating subsidiaries. In particular, the Company depends on: William N. Hulett, III, itsPresident and Chief Executive Officer; Rocco A. Di Lillo, its Vice President and Chief Operating Officer; and Mark D. Gagne, its Chief Financial Officer and Treasurer. While the Company has entered into employment agreements with these individuals, there can be no assurance that the Company will be able to retain the services of any of them. If any of these individuals does not continue in his management role following this offering and if the Company is unable to attract and retain qualified replacements, there 10 11 could be a material adverse effect on the Company's business, financial condition and results of operations. Each of the employment agreements with these individuals contains non-competition covenants with the Company. See "Management."LICENSING AND TAX ISSUES As a lessee of its accommodations, BridgeStreet believes that it and its employees are either outside the purview of, exempted from or in compliance with laws in the jurisdictions in which the Company operates requiring real estate brokers to hold licenses. However, there can be no assurance that the Company's position in any jurisdiction where it believes itself to be excepted or exempted will be upheld if challenged or that any such jurisdiction will not amend its laws to specifically require the Company and/or one or more of its employees to be licensed brokers. Moreover, there can be no assurance that the Company will not operate in the future in additional jurisdictions requiring such licensing.If the Company were found to have failed to comply with brokerage licensing laws, there could be a material adverse effect upon the Company's business, financial condition and results of operations. The Company provides flexible accommodation services for extended periods in leased as opposed to fixed-location accommodations. As a result, in some of the jurisdictions in which the Company operates, the Company believes that it is exempt from charging certain guests the sales and "bed" taxes that many jurisdictions require fixed-location lodging providers to charge their overnight guests. The imposition of a sales or "bed" tax requirement on the Company in instances where the Company currently does not charge such taxes, or the pursuit by taxing authorities of arrearages and penalties with respect to prior periods during which the Company did not collect and remit such taxes, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Regulation and Tax."CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS Upon completion of this offering, the Company's directors, executive officers and principal stockholders, together with their affiliates, will beneficially own approximately 53.8% of the Company's outstanding shares of Common Stock (approximately 51.0% if the Underwriters exercise their over-allotment option in full). As a result, these stockholders, if acting together, will have the ability to influence the outcome of corporate actions requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as a merger or sale of substantially all of the Company's assets, irrespective of how other stockholders of the Company may vote. This concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Management" and "Principal and Selling Stockholders."POSSIBLE FUTURE SALES OF SHARES Sales of substantial amounts of Common Stock in the public market after this offering under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or otherwise, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Stock and could impair the future ability of the Company to raise capital through an offering of its equity securities or to effect acquisitions using shares of its CommonStock. Prior to this offering, the Company had outstanding 5,475,000 shares of Common Stock, of which 915,000 are being offered by the Selling Stockholders in this offering. The remaining 4,560,000 shares are "restricted securities" within the meaning of Rule 144. Subject to the contractual lockup provisions discussed below and unless the resale of the shares is registered under the SecuritiesAct, these shares may not be sold in the open market until after the first anniversary of the transaction in which they were acquired, and then only in compliance with the applicable requirements of Rule 144. See "Shares Eligible for Future Sale." The Company and each of its directors, director nominees, executive officers and existing stockholders have agreed with the Representatives of theUnderwriters not to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for shares of Common Stock, for a period of 180 days after the date of this Prospectus without the written consent of the Representatives, subject, in the case of the Company, to an exception for the grant of options under the Company's Equity 11 12Incentive Plan and Directors' Plan (both as defined herein) or in connection with acquisitions (provided that the shares issued in any such acquisition are not resold during the 180-day period). See "Shares Eligible for Future Sale" and "Underwriting." CERTAIN ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and By-Laws require that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing, and require reasonable advance notice by a stockholder with respect to a proposal or director nomination such stockholder desires to present at any such meeting. Special meetings of stockholders may be called only by the President or Chairman of the Company or by the Board ofDirectors. In addition, the Board of Directors has the authority, without further action by the stockholders, to fix the rights and preferences of, and issue up to 5,000,000 shares of, Preferred Stock. These provisions and other provisions of the Certificate of Incorporation and By-Laws may have the effect of deterring unsolicited acquisition proposals or hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which stockholders might otherwise receive a premium for their shares of Common Stock over the then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. The Company also is subject toSection 203 of the Delaware General Corporation Law (the "DGCL") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder. See "Description of Capital Stock."NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or continue after this offering. The initial public offering price of the Common Stock was determined by negotiations between the Company and the Representatives of the Underwriters, and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting" for a description of the factors considered in determining the initial public offering price. From time to time after this offering, there may be significant volatility in the market price for the Common Stock. Quarterly operating results of the Company, changes in general conditions in the economy or the lodging industry, or other developments affecting the Company or the Company's competitors could cause the market price of the Common Stock to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the operating performance of those companies. Any such fluctuations following completion of this offering may adversely affect the prevailing market price of the Common Stock.IMMEDIATE AND SUBSTANTIAL DILUTION The purchasers of the shares of Common Stock offered hereby will experience immediate and substantial dilution in the net tangible book value of their shares of Common Stock in the amount of $7.15 per share, and may experience further dilution in that value from issuances of Common Stock in connection with future acquisitions. See "Dilution."ABSENCE OF DIVIDENDS The Company has never paid dividends on the Common Stock and does not anticipate paying any dividends in the foreseeable future. Declarations of dividends on the Common Stock will depend upon, among other things, future earnings, if any, the operating and financial condition of the Company, its capital requirements and general business conditions. The Company's credit facility currently prohibits dividend payments. See "Dividend Policy." 12 | 1 | < 0.1% | |
| risk factors an investment in our common stock involves various risks. you should carefully consider the following risks and all of the other information contained in this prospectus before investing in our common stock. the risks described below are those that we believe are the material risks that we face. the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment in our common stock. risks related to our business and industry we face significant competition for customers, real estate and employees and competitive pressure to adapt to changes in conditions driving customer traffic. our inability to compete effectively may affect our traffic, sales and profit margins, which could adversely affect our business, financial condition and results of operations. the restaurant industry is intensely competitive with a substantial number of restaurant operators that compete directly and indirectly with us in respect to price, service, location and food quality, and there are other well-established competitors with significant financial and other resources. there is also active competition for management personnel as well as attractive suitable real estate sites. consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently and effectively to those conditions. further, we face growing competition from the supermarket industry, with the improvement of their convenient meals in the deli section, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings by those restaurants. if we are unable to continue to compete effectively, our traffic, sales and margins could decline and our business, financial condition and results of operations would be adversely affected.challenging economic conditions may have a negative effect on our cash flows through lower consumer confidence and discretionary spending, availability and cost of credit, foreign currency exchange rates and other items. challenging economic conditions may negatively impact consumer confidence and discretionary spending and thus cause a decline in our cash flow from operations. for example, during the economic downturn starting in 2008, continuing disruptions in the overall economy, including the ongoing impacts of the housing crisis, high unemployment, and financial market volatility and unpredictability, caused a related reduction in consumer confidence, which negatively affected customer traffic and sales throughout our industry. these factors, as well as national, regional and local regulatory and economic conditions, gasoline prices, disposable consumer income and consumer confidence, affect discretionary consumer spending. if challenging economic conditions persist for an extended period of time or worsen, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently. the ability of the u.s. economy to continue to recover from these challenging economic conditions is likely to be affected by many national and international factors that are beyond our control, including current economic trends in europe. continued weakness in or a further worsening of the economy, generally or in a number of our markets, and our customers reactions to these trends could adversely affect our business and cause us to, among other things, reduce the number and frequency of new restaurant openings and lunch expansions, close restaurants or delay remodeling of our existing restaurant locations. in addition, as noted in our other risk factors, our high degree of leverage could increase our vulnerability to general economic and industry conditions and require that a substantial portion of cash flow from operations be dedicated to the payment of principal and interest on our indebtedness. further, the availability of credit already arranged for under our revolving credit facilities and the cost and availability of future credit may be adversely impacted by economic challenges. foreign currency exchange rates for the countries in which we operate may decline. in addition, we may experience interruptions in supplies and other services from our third-party vendors as a result of market conditions. these disruptions in the economy are beyond our control, and there is no guarantee that any government response will restore consumer confidence, stabilize the economy or increase the availability of credit. loss of key management personnel could hurt our business and inhibit our ability to operate and grow successfully. our success will continue to depend, to a significant extent, on our leadership team and other key management personnel. if we are unable to attract and retain sufficiently experienced and capable management personnel, our business and financial results may suffer. if members of our leadership team or other key management personnel leave, we may have difficulty replacing them, and our business may suffer. there can be no assurance that we will be able to successfully attract and retain our leadership team and other key management personnel that we need.we could face labor shortages that could slow our growth and adversely impact our ability to operate our restaurants. our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including managing partners, restaurant managers, kitchen staff and servers, necessary to keep pace with our anticipated expansion schedule and meet the needs of our existing restaurants. a sufficient number of qualified individuals of the requisite caliber to fill these positions may be in short supply in some communities. competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits. any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants, including any expansion in the lunch market. any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations.risks associated with our expansion plans may have adverse effects on our ability to increase revenues. as part of our business strategy, we intend to continue to expand our current portfolio of restaurants. current development schedules call for the construction of approximately 30 or more new restaurants in 2012. a variety of factors could cause the actual results and outcome of those expansion plans to differ from the anticipated results, including among other things: the availability of attractive sites for new restaurants and the ability to obtain appropriate real estate at those sites at acceptable prices; the ability to obtain all required governmental permits, including zoning approvals and liquor licenses, on a timely basis; the impact of moratoriums or approval processes of state, local or foreign governments, which could result in significant delays; the ability to obtain all necessary contractors and sub-contractors; union activities such as picketing and hand billing, which could delay construction; the ability to negotiate suitable lease terms; the ability to recruit and train skilled management and restaurant employees; the ability to receive the premises from the landlords developer without any delays; and weather, natural disasters and disasters beyond our control resulting in construction delays. some of our new restaurants may take several months to reach planned operating levels due to lack of market awareness, start-up costs and other factors typically associated with new restaurants. there is also the possibility that new restaurants may attract customers away from other restaurants we own, thereby reducing the revenues of those existing restaurants. 13 development rates for each concept may differ significantly. the development of each concept may not be as successful as our experience in the past. it is difficult to estimate the performance of newly opened restaurants. earnings achieved to date by restaurants open for less than two years may not be indicative of future operating results. should enough of these new restaurants not meet targeted performance, it could have a material adverse effect on our operating results.our business is subject to seasonal fluctuations and past results are not indicative of future results. historically, customer spending patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. additionally, holidays may affect sales volumes seasonally in some of the markets in which we operate. our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated pre-opening costs, as well as restaurant closures and exit-related costs and impairments of goodwill, intangible assets and property, fixtures and equipment. as a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.significant adverse weather conditions and other disasters could negatively impact our results of operations. adverse weather conditions and natural disasters, such as regional winter storms, floods, major hurricanes and earthquakes, severe thunderstorms and other disasters, such as oil spills, could negatively impact our results of operations. temporary and prolonged restaurant closures may occur and customer traffic may decline due to the actual or perceived effects from these events.we may be required to use cash to pay one of our franchisees in connection with a put right under a settlement agreement, which could have an adverse impact on our development plans and operating results. in connection with the settlement of litigation with t-bird, which include the franchisees of 56 outback steakhouse restaurants in california, we entered into an agreement with t-bird pursuant to which t-bird has the right, referred to as the put right, to require us to purchase for cash all of the ownership interests in the t-bird entities (which include general and limited partnership interests in such entities) that own 56 restaurants. the put right will become exercisable by t-bird for a one-year period beginning on the date of closing of this offering. the put right is also exercisable if we sell our outback steakhouse concept. if the putright is exercised, we will pay a purchase price equal to a multiple of the t-bird entities adjusted ebitda, net of liabilities, for the trailing 12 months as of the closing of the purchase from t-bird. the multiple will be equal to 75% of the multiple of our adjusted ebitda for the same trailing 12-month period as reflected in our stock price in the case of this offering or, in a sale of our outback steakhouse concept, 75% of the multiple of adjusted ebitda that we are receiving in the sale. we have a one-time right to reject the exercise of the put right if the transaction would be dilutive to our consolidated earnings per share. in that event, the put right is extended until the first anniversary of our notice to the t-bird entities of that rejection. we have agreed to waive all rights of first refusal in our franchise arrangements with the t-bird entities in connection with a sale of all, and not less than all, of the assets, or at least 75% of the ownership, of the t-bird entities. if the put right is exercised, we will have to use cash to pay the purchase price that could have been allocated to more profitable development initiatives or other business needs, and we will then own restaurants that may not fit our current expansion criteria. this could have an adverse impact on our operating results.we have limited control with respect to the operations of our franchisees and joint venture partners, which could have a negative impact on our business. our franchisees and joint venture partners are obligated to operate their restaurants according to the specific guidelines we set forth.we provide training opportunities to these franchisees and joint venture partners to fully integrate them into our operating strategy.however, since we do not have control over these restaurants, we cannot give assurance that there will not be differences in product quality or that there will be adherence to all 14 of our guidelines at these restaurants. the failure of these restaurants to operate effectively could adversely affect our cash flows from those operations or have a negative impact on our reputation or our business.our failure to comply with government regulation, and the costs of compliance or non-compliance, could adversely affect our business. we are subject to various federal, state, local and foreign laws affecting our business. each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, health and safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located. difficulty in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area. additionally, difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants. approximately 15% of our consolidated restaurant sales are attributable to the sale of alcoholic beverages. alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on sundays. typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, training, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages. the failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurants operations. additionally, we are subject in certain states to dramshop statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. our restaurant operations are also subject to federal and state labor laws, including the fair labor standards act, governing such matters as minimum wages, overtime, tip credits and worker conditions. our employees who receive tips as part of their compensation, such as servers, are paid at a minimum wage rate, after giving effect to applicable tip credits. we rely on our employees to accurately disclose the full amount of their tip income, and we base our fica tax reporting on the disclosures provided to us by such tipped employees. our other personnel, such as our kitchen staff, are typically paid in excess of minimum wage. as significant numbers of our food service and preparation personnel are paid at rates related to the applicable minimum wage, further increases in the minimum wage or other changes in these laws could increase our labor costs. our ability to respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and customers. further, we are continuing to assess the impact of federal health care legislation on our health care benefit costs. the requirement that we provide health insurance benefits to employees that are more extensive than the health insurance benefits we currently provide, or the imposition of additional employer paid employment taxes on income earned by our employees, could have an adverse effect on our results of operations and financial position. our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us. the patient protection and affordability act of 2010 (the ppaca) enacted in march 2010 requires chain restaurants with 20 or more locations in the united states to comply with federal nutritional disclosure requirements. the fda has indicated that it intends to issue final regulations by the middle of 2012 and begin enforcing the regulations by the end of 2012. a number of states, counties and cities have also enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants. although the federal legislation is intended to preempt conflicting state or local laws on nutrition labeling, until we are required to comply with the federal law we will be subject to a patchwork of state and local laws and regulations regarding nutritional content disclosure requirements. many of these requirements are inconsistent or are interpreted 15 differently from one jurisdiction to another. the effect of such labeling requirements on consumer choices, if any, is unclear at this time. there is also a potential for increased regulation of food in the united states under the recent changes in the haccp system requirements. haccp refers to a management system in which food safety is addressed through the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution and consumption of the finished product. many states have required restaurants to develop and implement haccp systems and the united states government continues to expand the sectors of the food industry that must adopt and implement haccp programs. for example, the food safety modernization act (the fsma), signed into law in january 2011, granted the fda new authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. although restaurants are specifically exempted from or not directly implicated by some of these new requirements, we anticipate that the new requirements may impact our industry. additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business. we are subject to the americans with disabilities act, or the ada, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled. the ada prohibits discrimination in employment and public accommodations on the basis of disability. under the ada, we could be required to expend funds to modify our restaurants to provide service to, or make reasonable accommodations for the employment of, disabled persons. in addition, our employment practices are subject to the requirements of the immigration and naturalization service relating to citizenship and residency. government regulations could affect and change the items we procure for resale such as commodities. we may also become subject to legislation or regulation seeking to tax or regulate high fat and high sodium foods, particularly in the united states, which could be costly to comply with. our results can be impacted by tax legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements. we are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit, protection and fraud, and any failure or perceived failure to comply with these laws and regulations could harm our reputation or lead to litigation, which could adversely affect our financial condition.we face a variety of risks associated with doing business in foreign markets that could have a negative impact on our financial performance. we have a significant number of franchised, joint venture and company-owned outback steakhouse restaurants outside the united states, and we intend to continue our efforts to grow internationally. although we believe we have developed the support structure for international operations and growth, there is no assurance that international operations will be profitable or international growth will continue. our foreign operations are subject to all of the same risks as our domestic restaurants, as well as additional risks including, among others, international economic and political conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, the ability to source high quality ingredients and other commodities in a cost-effective manner, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of ongoing royalties from international franchisees, the availability and cost of land and construction costs, and the availability of experienced management, appropriate franchisees and area operating partners. currency regulations and fluctuations in exchange rates could also affect our performance. we have direct investments in restaurants in south korea, hong kong and brazil, as well as international franchises, in a total of 21 countries and territories. as a result, we may experience losses from foreign currency translation, and such losses could adversely affect our overall sales and earnings. 16 we are subject to governmental regulation throughout the world, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the usa patriot act and the foreign corrupt practices act. any new regulatory or trade initiatives could impact our operations in certain countries. failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.increased commodity, energy and other costs could decrease our profit margins or cause us to limit or otherwise modify our menus, which could adversely affect our business. the performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities, including among other things beef, chicken, seafood, butter, cheese and produce. prices may be affected due to market changes, increased competition, the general risk of inflation, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, or other reasons. increased prices or shortages could affect the cost and quality of the items we buy or require us to raise prices or limit our menu options. for example, in 2011, commodity costs increased by approximately 5% and, as a result, we increased our prices at each of our concepts in the range of 1.5% to 3.0%. these events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our sales and profit margins. the performance of our restaurants is also adversely affected by increases in the price of utilities, such as natural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise. we use derivative instruments to mitigate some of our overall exposure to material increases in natural gas prices. we do not apply hedge accounting to these instruments, and any changes in the fair value of the derivative instruments are marked-to-market through earnings in the period of change. to date, effects of these derivative instruments have been immaterial to our financial statements for all periods presented. our business also incurs significant costs for insurance, labor, marketing, taxes, real estate, borrowing and litigation, all of which could increase due to inflation, changes in laws, competition or other events beyond our control. our ability to respond to increased costs by increasing menu prices or by implementing alternative processes or products will depend on our ability to anticipate and react to such increases and other more general economic and demographic conditions, as well as the responses of our competitors and customers. all of these things may be difficult to predict and beyond our control. in this manner, increased costs could adversely affect our performance.infringement of our intellectual property could diminish the value of our restaurant concepts and harm our business. we regard our service marks, including outback steakhouse, carrabbas italian grill, bonefish grill and flemings prime steakhouse and wine bar, and our bloomin onion trademark as having significant value and as being important factors in the marketing of our restaurants. we have also obtained trademarks for several of our other menu items and for various advertising slogans. in addition, the overall layout, appearance and designs of our restaurants are valuable assets. we believe that these and other intellectual property are valuable assets that are critical to our success. we rely on a combination of protections provided by contracts, copyrights, patents, trademarks, and other common law rights, such as trade secret and unfair competition laws, to protect our restaurants and services from infringement. we have registered certain trademarks and service marks and have other registration applications pending in the united states and foreign jurisdictions. however, not all of the trademarks or service marks that we currently use have been registered in all of the countries in which we do business, and they may never be registered in all of these countries. there may not be adequate protection for certain intellectual property such as the overall appearance of our restaurants. we are aware of names and marks similar to our service marks being used by other persons in certain geographic 17 areas in which we have restaurants. although we believe such uses will not adversely affect us, further or currently unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and restaurant concepts and may adversely affect our business. we may be unable to detect such unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. effective intellectual property protection may not be available in every country in which we have or intend to open or franchise a restaurant. failure to adequately protect our intellectual property rights could damage or even destroy our brands and impair our ability to compete effectively. even where we have effectively secured statutory protection for intellectual property, our competitors may misappropriate our intellectual property and our employees, consultants and suppliers may breach their obligations not to reveal our confidential information, including trade secrets. although we have taken appropriate measures to protect our intellectual property, there can be no assurance that these protections will be adequate or that our competitors will not independently develop products or concepts that are substantially similar to our restaurants and services. despite our efforts, it may be possible for third-parties to reverse-engineer, otherwise obtain, copy, and use information that we regard as proprietary. furthermore, defending or enforcing our trademark rights, branding practices and other intellectual property, and seeking injunctions against and/or compensation for misappropriation of confidential information, could result in the expenditure of significant resources.restaurant companies, including ours, have been the target of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws. proceedings of this nature are costly, divert management attention and, if successful, could result in our payment of substantial damages or settlement costs. our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. the outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify. in recent years, we and other restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. a number of these lawsuits have resulted in the payment of substantial damages by the defendants. similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, the sharing of tips among certain employees, overtime eligibility of assistant managers and failure to pay for all hours worked. if we are required to pay substantial damages and expenses as a result of these or other types of lawsuits our business and results of operations would be adversely affected. occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food borne illness and relating to notices with respect to chemicals contained in food products required under state law. we are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state laws. in addition, our restaurants are subject to state dram shop or similar laws which generally allow a person to sue us if that person was injured by a legally intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. the restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers. we may also be subject to lawsuits from our employees, the u.s. equal employment opportunity commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. for example, in december 2009, we entered into a consent decree in settlement of certain litigation brought by the u.s. equal employment opportunity commission alleging gender discrimination in promotions to management within the outback steakhouse organization, which required us to make a settlement payment of $19.0 million. in addition, during the four-year term of the consent decree, we are required to fulfill certain training, record-keeping and reporting requirements and maintain an open access system for restaurant employees to express interest in promotions within the outback steakhouse organization, and employ a human resources executive. 18 regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. in addition, they may generate negative publicity, which could reduce customer traffic and sales. although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. a judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business and results of operations.our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability. we are self-insured, or carry insurance programs with specific retention levels or deductibles, for a significant portion of our risks and associated liabilities with respect to workers co | 1 | < 0.1% | |
| risk factors investing in our classa common stock involves substantial risks. in addition to the other information in this prospectus, you should carefully consider the following factors before investing in our classa common stock. any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. the market price of our classa common stock could decline if one or more of these risks and uncertainties develop into actual events, causing you to lose all or part of the money you paid to buy our shares. while we believe these risks and uncertainties are most important for you to consider, we may face other risks or uncertainties which may adversely affect our business. certain statements in risk factors are forward-looking statements. see forward-looking statements. risks related to our businesswe face significant competition for our products and services. the markets for our various products and services are intensely competitive, continually evolving and, in some cases, subject to rapid technological change. while we do not believe any single competitor offers a similarly expansive suite of products and services, we face competition from many healthcare information systems companies and other technology companies within segments of the revenue and payment cycle markets. we also compete with certain of our customers that provide internally some of the same products and services that we offer. our key competitors include: (i)healthcare transaction processing companies, including those providing electronic data interchange (edi) and/or internet-based services and those providing services through other means, such as paper and fax; (ii)healthcare information system vendors that support providers, including physician practice management system and electronic medical record system vendors; (iii)large information technology consulting service providers; and (iv)health insurance companies, pharmacy benefit management companies and pharmacies that provide or are developing electronic transaction services for use by providers and/or by their members and customers. in addition, major software, hardware, information systems and business process outsourcing companies, both with and without healthcare companies as their partners, offer or have announced their intention to offer products or services that are competitive with products and services that we offer. within certain of the products and services markets in which we operate, we face competition from entities that are significantly larger and have greater financial resources than we do and have established reputations for success in implementing healthcare electronic transaction processing systems. other companies have targeted these markets for growth, including by developing new technologies utilizing internet-based systems. we may not be able to compete successfully with these companies, and these or other competitors may commercialize products, services or technologies that render our products, services or technologies obsolete or less marketable.some of our customers compete with us and some, instead of using a third party provider, perform internally some of the same services that we offer. some of our existing customers compete with us or may plan to do so or belong to alliances that compete with us or plan to do so, either with respect to the same products and services we provide to them or with respect to some of our other lines of business. for example, some of our payer customers currently offer, through affiliated clearinghouses, through web portals and other means, electronic data transmission services to providers that allow the provider to bypass third party edi service providers such as us, and additional payers may do so in the future. the ability of payers to replicate our products and services may adversely affect the terms and conditions we are able to negotiate in our agreements with them and our transaction volume with them, which directly relates to our revenues. we may not be able to maintain our existing relationships for connectivity services with payers or develop new relationships on satisfactory terms, if at all. in addition, some of our products and services allow payers to outsource business processes that they have been or could be performing internally and, in order for us to be able to compete, use of our products and services must be more efficient for them than use of internal resources. if we are unable to retain our existing customers, our business, financial condition and results of operations could suffer. our success depends substantially upon the retention of our customers, particularly due to our transaction-based, recurring revenue model. we may not be able to retain some of our existing customers if we are unable to continue to provide products and services that our payer customers believe enable them to achieve improved efficiencies and cost-effectiveness, and that our provider customers believe allow them to more effectively manage their revenue cycle, increase reimbursement rates and improve cash flows. we also may not be able to retain customers if our electronic and/or paper-based solutions contain errors or otherwise fail to perform properly or if our pricing structure is no longer competitive. historically, we have enjoyed high customer retention rates; however, we may not be able to maintain high retention rates in the future. our transaction-based, recurring revenues depend in part upon maintaining this high customer retention rate, and if we are unable to maintain our historically high customer retention rate, our business, financial condition and results of operations could be adversely impacted.if we are unable to connect to a large number of payers and providers, our product and service offerings would be limited and less desirable to our customers. our business largely depends upon our ability to connect electronically to a substantial number of payers, such as insurance companies, medicare and medicaid agencies and pharmacy benefit managers, and providers, such as hospitals, physicians, dentists and pharmacies. the attractiveness of some of the solutions we offer to providers, such as our claims management and submission services, depends in part on our ability to connect to a large number of payers, which allows us to streamline and simplify workflows for providers. these connections may either be made directly or through a clearinghouse. we may not be able to maintain our links with a large number of payers on terms satisfactory to us and we may not be able to develop new connections, either directly or through other clearinghouses, on satisfactory terms. the failure to maintain these connections could cause our products and services to be less attractive to our provider customers. in addition, our payer customers view our connections to a large number of providers as essential in allowing them to receive a high volume of transactions and realize the resulting cost efficiencies through the use of our products and services. our failure to maintain existing connections with payers, providers and other clearinghouses or to develop new connections as circumstances warrant, or an increase in the utilization of direct links between payers and providers, could cause our electronic transaction processing system to be less desirable to healthcare constituents, which would reduce the number of transactions that we process and for which we are paid, resulting in a decrease in revenues and an adverse effect on our financial condition and results of operations.the failure to maintain our relationships with our channel partners or significant changes in the terms of the agreements we have with them may have an adverse effect on our ability to successfully market our products and services. we have entered into contracts with other companies (channel partners), including healthcare information system vendors and electronic medical record vendors, to market and sell some of our products and services. most of these contracts are on a non-exclusive basis. however, under contracts with some of our channel partners, we may be bound by provisions that restrict our ability to market and sell our products and services to potential customers. our arrangements with some of these channel partners involve negotiated payments to them based on percentages of revenues they generate. if the payments prove to be too high, we may be unable to realize acceptable margins, but if the payments prove to be too low, the channel partners may not be motivated to produce a sufficient volume of revenues. the success of these contractual arrangements will depend in part upon the channel partners own competitive, marketing and strategic considerations, including the relative advantages of using alternative products being developed and marketed by them or our competitors. if any of these channel partners are unsuccessful in marketing our products and services or seek to amend the financial or other terms of the contracts we have with them, we will need to broaden our marketing efforts to increase focus on the solutions they sell and alter our distribution strategy, which may divert our planned efforts and resources from other projects. in addition, as part of the packages these channel partners sell, they may offer a choice to their customers between products and services that we supply and similar products and services offered by our competitors or by the channel partners directly. for example, one large payer customer terminated an mga with us during 2007 in order to allow some of our channel 17 partners and provider customers to directly submit transactions to the payer. if our products and services are not chosen for inclusion in vendor packages, the revenues we earn from these relationships will decrease. lastly, we could be subject to claims and liability, as a result of the activities, products or services of these channel partners or other resellers of our products and services. even if these claims do not result in liability to us, investigating and defending these claims could be expensive, time-consuming and result in adverse publicity that could harm our business.our business and future success may depend on our ability to cross-sell our products and services. our ability to generate revenue and growth partly depends on our ability to cross-sell our products and services to our existing customers and new customers. we expect our ability to successfully cross-sell our products and services will be one of the most significant factors influencing our growth. we may not be successful in cross-selling our products and services because our customers may find our additional products and services unnecessary or unattractive. our failure to sell additional products and services to existing customers could affect our ability to grow our business.we have faced and will continue to face increasing pressure to reduce our prices, which may cause us to no longer be competitive. as electronic transaction processing further penetrates the healthcare market or becomes highly standardized, competition among electronic transaction processors is increasingly focused on pricing. this competition has placed, and could place further, intense pressure on us to reduce our prices in order to retain market share. if we are unable to reduce our costs sufficiently to offset declines in our prices, or if we are unable to introduce new, innovative product and service offerings with higher margins, our results of operations could decline. in addition, many healthcare industry constituents are consolidating to create integrated healthcare delivery systems with greater market power. as provider networks, such as hospitals, and payer organizations, such as private insurance companies, consolidate, competition to provide the types of products and services we provide will become more intense, and the importance of establishing and maintaining relationships with key industry constituents will become greater. these industry constituents have, in the past, and may, in the future, try to use their market power to negotiate price reductions for our products and services. if we are forced to reduce prices, our margins will decrease and our results of operations will decline, unless we are able to achieve corresponding reductions in expenses.our ability to generate revenue could suffer if we do not continue to update and improve our existing products and services and develop new ones. we must improve the functionality of our existing products and services in a timely manner and introduce new and valuable healthcare information technology and service solutions in order to respond to technological and regulatory developments and, thereby, retain existing customers and attract new ones. for example, from time to time, government agencies may alter format and data code requirements applicable to electronic transactions. we may not be successful in responding to technological and regulatory developments and changing customer needs. the pace of change in the markets we serve is rapid, and there are frequent new product and service introductions by our competitors and by channel partners who use our products and services in their offerings. if we do not respond successfully to technological and regulatory changes and evolving industry standards, our products and services may become obsolete. technological changes may also result in the offering of competitive products and services at lower prices than we are charging for our products and services, which could result in our losing sales unless we lower the prices we charge. if we do lower our prices on some of our products and services, we will need to increase our margins on these products and services in order to increase our overall profitability. in addition, the products and services we develop or license may not be able to compete with the alternatives available to our customers. achieving market acceptance of new or updated products and services is necessary in order for them to become profitable and will likely require significant efforts and expenditures. our future financial results will depend in part on whether our new or updated products and services receive sufficient customer acceptance. these products and services include: electronic billing, payment and remittance services for payers and providers that complement our existing paper-based patient billing and payment and payment distribution services; electronic prescriptions from healthcare providers to pharmacies and pharmacy benefit managers; our other pre- and post-adjudication services for payers and providers;and decision support, payment integrity or other business intelligence solutions. achieving market acceptance for new or updated products and services is likely to require substantial marketing efforts and expenditure of significant funds to create awareness and demand by constituents in the healthcare industry. in addition, deployment of new or updated products and services may require the use of additional resources for training our existing sales force and customer service personnel and for hiring and training additional salespersons and customer service personnel. failure to achieve broad penetration in target markets with respect to new or updated products and services could have an adverse effect on our business prospects and financial results.there are increased risks of performance problems during times when we are making significant changes to our products and services or to systems we use to provide services. in addition, implementation of our products and services and efficiency measures and other cost savings initiatives may cost more, may not provide the benefits expected or may take longer than anticipated. in order to respond to technological and regulatory changes and evolving industry standards, our products and services must be continually updated and enhanced. the software and systems that we sell and that we use to provide services are inherently complex and, despite testing and quality control, we cannot be certain that errors will not be found in any changes, enhancements, updates and new versions that we market or use. even if new or modified products and services do not have performance problems, our technical and customer service personnel may have difficulties in installing them or in their efforts to provide any necessary training and support to customers. implementation of changes in our technology and systems may cost more or take longer than originally expected and may require more testing than originally anticipated. while the new hardware and software will be tested before it is used in production, we cannot be sure that the testing will uncover all problems that may occur in actual use. if significant problems occur as a result of these changes, we may fail to meet our contractual obligations to customers, which could result in claims being made against us or in the loss of customer relationships. in addition, changes in our technology and systems may not provide the additional functionality or other benefits that were originally expected. in addition, we also periodically implement efficiency measures and other cost saving initiatives to improve our operating performance. these efficiency measures and other cost saving initiatives may not provide the benefits anticipated in the time frame expected, or at all.disruptions in service or damages to our data or other operation centers, or other software or systems failures, could adversely affect our business. our data centers and operation centers are essential to our business. our operations depend on our ability to maintain and protect our computer systems, many of which are located in data centers that we operate in memphis and nashville, tennessee, and one operated by a third party in florida. our business and results of operations are also highly dependent on our print and mail operations, which are primarily conducted in print and mail operations centers in bridgeton, missouri and toledo, ohio. we conduct business continuity planning and maintain insurance against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at one of our data centers, print and mail facilities or other locations; however, the situations we plan for and the amount of insurance coverage may not be adequate in any particular case. the occurrence of any of these events could result in interruptions, delays or cessations in service to users of our products and services, which could impair or prohibit our ability to provide our products and services, 19 reduce the attractiveness of our products and services to our customers and adversely impact our financial condition and results of operations. in addition, despite the implementation of security measures, our infrastructure, data centers or systems that we interface with, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, terrorist attacks or other attacks by third parties or similar disruptive problems. any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions or increased response time for our products and services. as a result, we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches. we also rely on a limited number of suppliers to provide us with a variety of products and services, including telecommunications and data processing services necessary for our transaction services and processing functions and software developers for the development and maintenance of certain software products we use to provide our solutions. if these suppliers do not fulfill their contractual obligations or choose to discontinue their products or services, our business and operations could be disrupted, our brand and reputation could be harmed and our financial condition and operating results could be adversely affected.we may be liable to our customers and may lose customers if we provide poor service, if our products and services do not comply with our agreements or if our software products or transmission systems contain errors or experience failures. we must meet our customers service level expectations and our contractual obligations with respect to our products and services. failure to do so could subject us to liability, as well as cause us to lose customers. in some cases, we rely upon third party contractors to assist us in providing our products and services. our ability to meet our contractual obligations and customer expectations may be impacted by the performance of our third party contractors and their ability to comply with applicable laws and regulations. for example, our new electronic payment and remittance services depend in part on the ability of our vendors to comply with applicable banking and financial service requirements and their failure to do so could cause an interruption in the services we provide or require us to seek alternative solutions or relationships. errors in the software and systems we provide to customers or the software and systems we use to provide our products and services also could cause serious problems for our customers. in addition, because of the large amount of data we collect and manage, it is possible that hardware failures and errors in our systems would result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. for example, errors in our transaction processing systems can result in payers paying the wrong amount, making payments to the wrong payee or delaying payments. since some of our products and services relate to laboratory ordering and reporting and electronic prescriptions, an error in our systems also could result in injury to a patient. if problems like these occur, our customers may seek compensation from us or may seek to terminate their agreements with us, withhold payments due to us, seek refunds from us of part or all of the fees charged under our agreements, a loan or advancement of funds, or initiate litigation or other dispute resolution procedures. in addition, we may be subject to claims against us by others affected by any such problems. in addition, our activities and the activities of our third party contractors involve the storage, use and transmission of personal health information. accordingly, security breaches of our computer systems or at print and mail operation centers could expose us to a risk of loss or litigation, government enforcement actions and contractual liabilities. we cannot assure you that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements. any security breaches also could impact our ability to provide our products and services, as well as impact the confidence of our customers in our products and services, either of which could have an adverse effect on our business, financial condition and results of operations. we attempt to limit, by contract, our liability for damages arising from our negligence, errors, mistakes or security breaches. however, contractual limitations on liability may not be enforceable or may otherwise not provide sufficient protection to us from liability for damages. we maintain liability insurance coverage, including coverage for errors and omissions. it is possible, however, that claims could exceed the amount of our applicable 20 insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert managements attention away from our operations. in addition, negative publicity caused by these events may delay market acceptance of our products and services, including unrelated products and services, or may harm our reputation and our business. we are currently in discussions with hlth to whom we provide de-identified data regarding the scope of, and the performance under, the agreement governing such relationship. see certain relationships and related party transactions agreements with hlth corporation and its affiliates amended and restated data license agreement.our business will suffer if we fail to successfully integrate acquired businesses and technologies or to appropriately assess the risks in particular transactions. we have in the past acquired, and may in the future acquire, businesses, technologies, services, product lines and other assets. for example, in july 2009 we acquired erx and intend to integrate its operations with our business. the successful integration of any businesses and assets we acquire into our operations, on a cost-effective basis, can be critical to our future performance. the amount and timing of the expected benefits of any acquisition, including potential synergies between our current business and the acquired business, are subject to significant risks and uncertainties. these risks and uncertainties include, but are not limited to, those relating to: our ability to maintain relationships with the customers of the acquired business; our ability to cross-sell products and services to customers with which we have established relationships and those with which the acquired businesses have established relationships; our ability to retain or replace key personnel; potential conflicts in payer, provider, vendor or marketing relationships; our ability to coordinate organizations that are geographically diverse and may have different business cultures;and compliance with regulatory requirements. we cannot guarantee that any acquired businesses will be successfully integrated with our operations in a timely or cost-effective manner, or at all. failure to successfully integrate acquired businesses or to achieve anticipated operating synergies, revenue enhancements or cost savings could have an adverse effect on our business, financial condition and results of operations. although our management attempts to evaluate the risks inherent in each transaction and to evaluate acquisition candidates appropriately, we may not properly ascertain all such risks and the acquired businesses and assets may not perform as we expect or enhance the value of our company as a whole. in addition, acquired companies or businesses may have larger than expected liabilities that are not covered by the indemnification, if any, that we are able to obtain from the sellers.we have a substantial amount of indebtedness which could affect our financial condition. as of june30, 2009, we had an aggregate of $860.1million of outstanding indebtedness (before deduction of unamortized debt discount of $59.0million) and we had the ability to borrow an additional $44.2million under our revolving credit facility. if we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. we do not know whether we will be able to take any of such actions on a timely basis or on terms satisfactory to us or at all. our substantial amount of indebtedness could limit our ability to: obtain necessary additional financing for working capital, capital expenditures or other purposes in the future; plan for, or react to, changes in our business and the industries in which we operate; make future acquisitions or pursue other business opportunities;and react in an extended economic downturn. 21 despite our substantial indebtedness, we may still be able to incur significantly more debt. the incurrence of additional debt could increase the risks associated with our substantial leverage, including our ability to service our indebtedness. in addition, because borrowings under our credit agreements bear interest at a variable rate, our interest expense could increase, exacerbating these risks. for instance, assuming an aggregate principal balance of $860.1million outstanding under our credit agreements, which was the amount outstanding as of june30, 2009, and considering the effect of our interest rate swap agreement, a 1% increase in the interest rate we are charged on our debt would increase our annual interest expense by $4.4million.recent events in the credit markets may affect our ability to refinance our existing debt or obtain additional debt financing on acceptable terms. we may need or seek additional financing in the future to either refinance our existing indebtedness, fund our operations, fund acquisitions, develop additional products and services or implement other projects. given the state of the current credit environment resulting from, among other things, the general weakening of the global economy, it may be difficult to refinance our existing indebtedness or obtain any such additional financing on acceptable terms, which could have an adverse effect on our financial condition, including our results of operations and/or business plans. in addition, if as a result of the current conditions in the credit markets any of the lenders participating in our revolving credit facility are unable to fund borrowings under such facility, our liquidity could be adversely affected.the terms of our credit agreements may restrict our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations. our credit agreements contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things: incur additional debt; issue preferred stock; create liens; create or incur contingent obligations; engage in sales of assets and subsidiary stock; enter into sale-leaseback transactions; make investments and acquisitions; enter into hedging arrangements; make capital expenditures; pay dividends and make other restricted payments; enter into transactions with affiliates;and transfer all or substantially all of our assets or enter into merger or consolidation transactions. our credit agreements also require us to maintain certain financial ratios, including a maximum total leverage ratio and a minimum interest coverage ratio. a failure by us to comply with the covenants or financial ratios contained in our credit agreements could result in an event of default under the applicable facility which could adversely affect our ability to respond to changes in our business and manage our operations. a change of control of our company is also an event of default under our credit agreements. under our credit agreements, a change of control of our company will occur if any person other than the general atlantic equityholders or the h&f equityholders (collectively, the permitted holders) or us or our subsidiaries acquires, directly or indirectly, more than 35% of the outstanding equity interests of ebs master and at the time of the acquisition the permitted holders do not collectively hold equity interests of ebs master representing greater voting power in ebs master than such person. in the event of any default under our first lien credit agreement, the lenders under that agreement will not be 22 required to lend any additional amounts to us. in addition, upon the occurrence of an event of default under either of our credit agreements, the lenders under both credit agreements could elect to declare all amounts outstanding to be due and payable and require us to apply all of our available cash to repay these amounts. if the indebtedness under our credit agreements were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full.recent developments in the healthcare industry could adversely affect our business. national healthcare reform is currently a major focus at the federal level, and congressional leaders are targeting legislation to be passed by the fall. there are currently numerous federal, state and private i | 1 | < 0.1% | |
| Other values (3047) | 3047 | 91.5% | |
| (Missing) | 273 | 8.2% |
| Max length | 32767 |
|---|---|
| Mean length | 28462.92252 |
| Min length | 3 |
| Contains chars | True |
| Contains digits | True |
| Contains spaces | True |
| Contains non-words | True |
roa
Numeric
| Distinct count | 2932 |
|---|---|
| Unique (%) | 88.0% |
| Missing (%) | 11.8% |
| Missing (n) | 392 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | -0.1273795482 |
|---|---|
| Minimum | -12.45948946 |
| Maximum | 1.78130217 |
| Zeros (%) | < 0.1% |
Quantile statistics
| Minimum | -12.45948946 |
|---|---|
| 5-th percentile | -0.6556836903 |
| Q1 | -0.2069382406 |
| Median | -0.005948718697 |
| Q3 | 0.04325948379 |
| 95-th percentile | 0.152261726 |
| Maximum | 1.78130217 |
| Range | 14.24079163 |
| Interquartile range | 0.2501977244 |
Descriptive statistics
| Standard deviation | 0.4525257137 |
|---|---|
| Coef of variation | -3.552577474 |
| Kurtosis | 261.8163367 |
| Mean | -0.1273795482 |
| MAD | 0.2222233922 |
| Skewness | -12.13976851 |
| Sum | -374.2411127 |
| Variance | 0.2047795216 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0.03049457589 | 4 | 0.1% | |
| -0.6556836903 | 2 | 0.1% | |
| -0.3417159919 | 2 | 0.1% | |
| -0.5949809886 | 2 | 0.1% | |
| -0.2529246993 | 2 | 0.1% | |
| 0.07369627507 | 1 | < 0.1% | |
| -0.8387723388 | 1 | < 0.1% | |
| -0.2558480372 | 1 | < 0.1% | |
| 0.1349469496 | 1 | < 0.1% | |
| -0.0165052662 | 1 | < 0.1% | |
| Other values (2921) | 2921 | 87.7% | |
| (Missing) | 392 | 11.8% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -12.45948946 | 1 | < 0.1% | |
| -9.164893617 | 1 | < 0.1% | |
| -6.164203085 | 1 | < 0.1% | |
| -4.577086882 | 1 | < 0.1% | |
| -4.093584906 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 1.78130217 | 1 | < 0.1% | |
| 0.7253003635 | 1 | < 0.1% | |
| 0.6492075851 | 1 | < 0.1% | |
| 0.5674022628 | 1 | < 0.1% | |
| 0.5324116886 | 1 | < 0.1% |
sharesOfferedPerc
Numeric
| Distinct count | 2199 |
|---|---|
| Unique (%) | 66.0% |
| Missing (%) | 7.9% |
| Missing (n) | 262 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 30.14595828 |
|---|---|
| Minimum | 0.39 |
| Maximum | 100 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 0.39 |
|---|---|
| 5-th percentile | 10.5035 |
| Q1 | 18.62 |
| Median | 25.72 |
| Q3 | 35.44 |
| 95-th percentile | 73.6525 |
| Maximum | 100 |
| Range | 99.61 |
| Interquartile range | 16.82 |
Descriptive statistics
| Standard deviation | 18.29188517 |
|---|---|
| Coef of variation | 0.6067773662 |
| Kurtosis | 3.595483208 |
| Mean | 30.14595828 |
| MAD | 12.85673676 |
| Skewness | 1.799120493 |
| Sum | 92487.8 |
| Variance | 334.5930629 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 100 | 27 | 0.8% | |
| 86.96 | 11 | 0.3% | |
| 12.61 | 6 | 0.2% | |
| 19.34 | 5 | 0.2% | |
| 26.83 | 5 | 0.2% | |
| 18.56 | 5 | 0.2% | |
| 22.49 | 5 | 0.2% | |
| 25.11 | 5 | 0.2% | |
| 22.79 | 5 | 0.2% | |
| 21.05 | 5 | 0.2% | |
| Other values (2188) | 2989 | 89.8% | |
| (Missing) | 262 | 7.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0.39 | 1 | < 0.1% | |
| 1.02 | 1 | < 0.1% | |
| 1.07 | 1 | < 0.1% | |
| 1.42 | 1 | < 0.1% | |
| 1.45 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 100 | 27 | 0.8% | |
| 99.93 | 1 | < 0.1% | |
| 99.88 | 1 | < 0.1% | |
| 99.86 | 1 | < 0.1% | |
| 99.82 | 1 | < 0.1% |
sp2weeksBefore
Highly correlated
This variable is highly correlated with nasdaq2weeksBefore and should be ignored for analysis
| Correlation | 0.964605601 |
|---|
totalAssets
Numeric
| Distinct count | 2951 |
|---|---|
| Unique (%) | 88.6% |
| Missing (%) | 10.7% |
| Missing (n) | 357 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 1461.073875 |
|---|---|
| Minimum | 0.99 |
| Maximum | 293030 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 0.99 |
|---|---|
| 5-th percentile | 18.938 |
| Q1 | 66.23 |
| Median | 154.725 |
| Q3 | 551.256 |
| 95-th percentile | 3734.0922 |
| Maximum | 293030 |
| Range | 293029.01 |
| Interquartile range | 485.026 |
Descriptive statistics
| Standard deviation | 11017.364 |
|---|---|
| Coef of variation | 7.540593392 |
| Kurtosis | 396.4657826 |
| Mean | 1461.073875 |
| MAD | 2109.264743 |
| Skewness | 18.6287398 |
| Sum | 4343772.629 |
| Variance | 121382309.6 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 11707 | 4 | 0.1% | |
| 116.58 | 2 | 0.1% | |
| 139.611 | 2 | 0.1% | |
| 153.031 | 2 | 0.1% | |
| 56.795 | 2 | 0.1% | |
| 23.965 | 2 | 0.1% | |
| 104.308 | 2 | 0.1% | |
| 5.406 | 2 | 0.1% | |
| 281.771 | 2 | 0.1% | |
| 116.661 | 2 | 0.1% | |
| Other values (2940) | 2951 | 88.6% | |
| (Missing) | 357 | 10.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0.99 | 1 | < 0.1% | |
| 1.266 | 1 | < 0.1% | |
| 1.797 | 1 | < 0.1% | |
| 1.825 | 1 | < 0.1% | |
| 2.139 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 293030 | 1 | < 0.1% | |
| 255018 | 1 | < 0.1% | |
| 221023.2 | 1 | < 0.1% | |
| 220797 | 1 | < 0.1% | |
| 151828 | 1 | < 0.1% |
totalProceeds
Highly correlated
This variable is highly correlated with ipoSize and should be ignored for analysis
| Correlation | 0.9951531237 |
|---|
totalRevenue
Numeric
| Distinct count | 2760 |
|---|---|
| Unique (%) | 82.9% |
| Missing (%) | 11.3% |
| Missing (n) | 375 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 556.6838717 |
|---|---|
| Minimum | -18.834 |
| Maximum | 135592 |
| Zeros (%) | 5.3% |
Quantile statistics
| Minimum | -18.834 |
|---|---|
| 5-th percentile | 0 |
| Q1 | 19.7255 |
| Median | 73.667 |
| Q3 | 274.8985 |
| 95-th percentile | 2119.3281 |
| Maximum | 135592 |
| Range | 135610.834 |
| Interquartile range | 255.173 |
Descriptive statistics
| Standard deviation | 3152.987979 |
|---|---|
| Coef of variation | 5.663875207 |
| Kurtosis | 1160.88751 |
| Mean | 556.6838717 |
| MAD | 771.4545387 |
| Skewness | 29.07194647 |
| Sum | 1645000.841 |
| Variance | 9941333.199 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
| Value | Count | Frequency (%) | |
| 0 | 176 | 5.3% | |
| 8268 | 4 | 0.1% | |
| 0.686 | 3 | 0.1% | |
| 4.436 | 2 | 0.1% | |
| 3207.7 | 2 | 0.1% | |
| 0.191 | 2 | 0.1% | |
| 49.352 | 2 | 0.1% | |
| 0.869 | 2 | 0.1% | |
| 173.911 | 2 | 0.1% | |
| 8.57 | 2 | 0.1% | |
| Other values (2749) | 2758 | 82.8% | |
| (Missing) | 375 | 11.3% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| -18.834 | 1 | < 0.1% | |
| 0 | 176 | 5.3% | |
| 0.008 | 1 | < 0.1% | |
| 0.01 | 1 | < 0.1% | |
| 0.012 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 135592 | 1 | < 0.1% | |
| 42249 | 1 | < 0.1% | |
| 31947 | 1 | < 0.1% | |
| 29682 | 1 | < 0.1% | |
| 27177 | 1 | < 0.1% |
Unnamed_0
Numeric
| Distinct count | 3330 |
|---|---|
| Unique (%) | 100.0% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 1841.75045 |
|---|---|
| Minimum | 0 |
| Maximum | 3699 |
| Zeros (%) | < 0.1% |
Quantile statistics
| Minimum | 0 |
|---|---|
| 5-th percentile | 191.45 |
| Q1 | 906.25 |
| Median | 1831.5 |
| Q3 | 2765.75 |
| 95-th percentile | 3514.55 |
| Maximum | 3699 |
| Range | 3699 |
| Interquartile range | 1859.5 |
Descriptive statistics
| Standard deviation | 1069.835375 |
|---|---|
| Coef of variation | 0.5808796599 |
| Kurtosis | -1.206125446 |
| Mean | 1841.75045 |
| MAD | 926.5657685 |
| Skewness | 0.01109469893 |
| Sum | 6133029 |
| Variance | 1144547.73 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=50)
Histogram with variable size bins (bins=[ 0. 3699.], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 2047 | 1 | < 0.1% | |
| 1996 | 1 | < 0.1% | |
| 2676 | 1 | < 0.1% | |
| 625 | 1 | < 0.1% | |
| 2672 | 1 | < 0.1% | |
| 621 | 1 | < 0.1% | |
| 2668 | 1 | < 0.1% | |
| 617 | 1 | < 0.1% | |
| 2664 | 1 | < 0.1% | |
| 613 | 1 | < 0.1% | |
| Other values (3320) | 3320 | 99.7% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 0 | 1 | < 0.1% | |
| 2 | 1 | < 0.1% | |
| 3 | 1 | < 0.1% | |
| 4 | 1 | < 0.1% | |
| 5 | 1 | < 0.1% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 3699 | 1 | < 0.1% | |
| 3698 | 1 | < 0.1% | |
| 3697 | 1 | < 0.1% | |
| 3696 | 1 | < 0.1% | |
| 3695 | 1 | < 0.1% |
vc
Boolean
| Distinct count | 2 |
|---|---|
| Unique (%) | 0.1% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| False | |
|---|---|
| True |
| Value | Count | Frequency (%) | |
| False | 1909 | 57.3% | |
| True | 1421 | 42.7% |
year
Numeric
| Distinct count | 23 |
|---|---|
| Unique (%) | 0.7% |
| Missing (%) | 0.0% |
| Missing (n) | 0 |
| Infinite (%) | 0.0% |
| Infinite (n) | 0 |
| Mean | 2005.031832 |
|---|---|
| Minimum | 1996 |
| Maximum | 2018 |
| Zeros (%) | 0.0% |
Quantile statistics
| Minimum | 1996 |
|---|---|
| 5-th percentile | 1997 |
| Q1 | 1999 |
| Median | 2004 |
| Q3 | 2012 |
| 95-th percentile | 2017 |
| Maximum | 2018 |
| Range | 22 |
| Interquartile range | 13 |
Descriptive statistics
| Standard deviation | 7.062196879 |
|---|---|
| Coef of variation | 0.003522236788 |
| Kurtosis | -1.263729148 |
| Mean | 2005.031832 |
| MAD | 6.202863043 |
| Skewness | 0.4040023718 |
| Sum | 6676756 |
| Variance | 49.87462476 |
| Memory size | 26.1 KiB |
Histogram with fixed size bins (bins=23)
Histogram with variable size bins (bins=[1996. 1997.5 1998.5 2000.5 2003.5 ... 2009.5 2012.5 2014.5 2017.5 2018. ], "bayesian blocks" binning strategy used)
| Value | Count | Frequency (%) | |
| 1997 | 371 | 11.1% | |
| 1999 | 362 | 10.9% | |
| 2000 | 292 | 8.8% | |
| 1998 | 218 | 6.5% | |
| 2014 | 205 | 6.2% | |
| 2004 | 174 | 5.2% | |
| 1996 | 157 | 4.7% | |
| 2013 | 154 | 4.6% | |
| 2007 | 150 | 4.5% | |
| 2006 | 150 | 4.5% | |
| Other values (13) | 1097 | 32.9% |
Minimum 5 values
| Value | Count | Frequency (%) | |
| 1996 | 157 | 4.7% | |
| 1997 | 371 | 11.1% | |
| 1998 | 218 | 6.5% | |
| 1999 | 362 | 10.9% | |
| 2000 | 292 | 8.8% |
Maximum 5 values
| Value | Count | Frequency (%) | |
| 2018 | 137 | 4.1% | |
| 2017 | 106 | 3.2% | |
| 2016 | 69 | 2.1% | |
| 2015 | 118 | 3.5% | |
| 2014 | 205 | 6.2% |
First rows
| age | amountOnProspectus | blueSky | bookValue | city | closeDay1 | commonEquity | commonEquity.1 | dj2weeksBefore | egc | exchange | highTech | html | industryFF12 | industryFF48 | industryFF5 | investmentReceived | ipoSize | issuer | leverage | managementFee | manager | nasdaq2weeksBefore | netIncome | nExecutives | nPatents | nUnderwriters | nVCs | offerPrice | patRatio | pe | priorFinancing | prominence | reputationAvg | reputationLeadAvg | reputationLeadMax | reputationSum | rf | roa | sharesOfferedPerc | sp2weeksBefore | totalAssets | totalProceeds | totalRevenue | Unnamed_0 | vc | year | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0 | 5.0 | 77.5 | 8000.0 | 219.134116 | SAN JOSE | 35.5625 | NaN | 100.00 | 11112.72 | False | NASDQ | True | False | Business Equipment -- Computers, Software, and Electronic Equipment | Electronic Equipment | Business Equipment, Telephone and Television Transmission | 64190.0 | 68114956.0 | Numerical Technologies Inc | 0.000000 | 924417.0 | Credit Suisse First Boston Corp | 4963.03 | -48.811 | 5.0 | 1 | 14 | 5.0 | 14.0 | 0.492063 | False | 64190.0 | 1 | 7.572429 | 9.0010 | 9.001 | 106.014 | RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If the key markets within the semiconductor industry, especially semiconductor manufacturers, do not adopt our proprietary technologies and software products, we may be unable to generate sales of our productsThe four key markets within the semiconductor industry are semiconductor designers and design tool vendors, photomask manufacturers, semiconductor equipment manufacturers and semiconductor manufacturers. If these key markets do not adopt our proprietary technologies and software products, our product sales could decline. We design our technologies and products so that each key market within the semiconductor industry can work efficiently with the other markets. For example, if designers do not adopt our technologies and products, it will be more difficult for them to design semiconductors which are understood and processed efficiently by mask manufacturers that do adopt our technologies and products. In addition, we believe semiconductor manufacturers need to adopt our proprietary technologies and software products first in order to drive adoption by the other three markets. Semiconductor manufacturers define and develop the manufacturing process. While designers, mask manufacturers and equipment manufacturers are not required to adopt our technologies and products in order to work with semiconductor manufacturers that do adopt them, the efficiency of the entire manufacturing process is greatly diminished if they do not. If each key market of the semiconductor industry does not perceive our proprietary technologies and software products as the industry standard, our technologies and products could become less valuable and more difficult to license. Factors that may limit adoption of our subwavelength solution within the markets include: . our current and potential industry partners and customers may fail to adopt our technologies and products; . semiconductor designers may not need subwavelength processes if there is a slowdown in semiconductor manufacturing or a decrease in the demand for smaller semiconductor feature sizes; and . the industry may develop alternative methods to produce subwavelength features with existing capital equipment due to a rapidly evolving market and the likely emergence of new technologies. In order for potential industry partners and customers to adopt, and expend their own resources to implement, our technologies and products, we must expend significant marketing resources, with no guarantee of successOur proprietary technologies and software products involve a new approach to the subwavelength gap problem. As a result, we must employ intensive and sophisticated marketing and sales efforts to educate prospective industry partners and customers about the benefits of our technologies and products, with no guarantee of success. Our sales and marketing expenses increased from $1.4 million in 1998 to $4.3 million in 1999. In addition, even if our industry partners and customers adopt our proprietary technologies and software products, they must devote the resources necessary to fully integrate our technologies and products into their operations. This is especially true for our industry partners so that they can begin to resell and market our solution to their customers. If they do not make these expenditures, establishing our technologies and products as the industry standard to the subwavelength gap problem will be difficult. Our limited operating history and dependence on new technologies make it difficult to evaluate our future prospectsWe only have a limited operating history on which you can base your evaluation of our business. We face a number of risks as an emerging company in a new market. For example, the key markets within the 7 semiconductor industry may fail to adopt our proprietary technologies and software products, or we may not be able to establish distribution channels. Our company incorporated in October 1995. In February 1997, we shipped our initial software product, IC Workbench. We have only recently begun to expand our operations significantly. For example, we grew from 47 employees as of January 1, 1999 to 105 employees as of January 1, 2000. We have a history of losses, we expect to incur losses in the future and we may be unable to achieve profitabilityWe may not achieve profitability if our revenue increases more slowly than we expect or not at all. In addition, our operating expenses are largely fixed, and any shortfall in anticipated revenue in any given period could cause our operating results to decrease. We have not been profitable in any quarter, and our accumulated deficit was approximately $16.2 million as of December 31, 1999. We expect to continue to incur significant operating expenses in connection with increased funding for research and development and expansion of our sales and marketing efforts. In addition, we expect to incur additional noncash charges relating to amortization of intangibles and deferred stock compensation. As a result, we will need to generate significant revenue to achieve and maintain profitability. If we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis. Any of the factors discussed above could cause our stock price to decline. We recently acquired Transcription Enterprises Limited and if we are not successful in integrating Transcription's products and operations with ours, our revenue and operating results could declineOur recent acquisition of Transcription Enterprises Limited will only be successful if we are able to integrate its operations with ours, which could substantially divert management's attention from the day-to-day operations of the combined company. If we encounter any difficulties in the transition process, the revenue and operating results of the combined company could decline. We must successfully integrate Transcription's products with ours. We must also coordinate our research and development and sales and marketing efforts to realize the technological benefits of this combinationWe may find it difficult to integrate personnel with disparate business backgrounds and combine two different corporate cultures. In addition, the process of combining our company with Transcription could interrupt the activities of either or both of the companies' businesses. It is possible that we will not be able to retain key Transcription management, technical and sales personnelIn addition, the acquisition of Transcription could cause our industry partners and customers to be uncertain about our ability to support the combined companies' products and the direction of the combined companies' product development efforts. As a result, they may delay or cancel product orders, which could significantly decrease our revenue and limit our ability to implement our combined business strategy. Our acquisition of Transcription may increase the focus of the semiconductor industry on the manufacturing data preparation market, which could lead to a rapid and substantial increase in competitionOur recent acquisition of Transcription may increase the semiconductor industry's awareness of the market for manufacturing data preparation software, which could lead to a substantial increase in the number of start-up companies that focus on software solutions for data preparation. Manufacturing data preparation software translates semiconductor designs into instructions that control manufacturing equipment. Potential competitors could pursue and execute partnership agreements with key industry partners we intend to pursue, which could make it difficult or impossible for us to develop relationships with these potential industry partners. In addition, some of our current competitors may increase their own research and development budgets relating to data preparation, or may more aggressively market competing solutions. 8 If we do not continue to introduce new technologies and software products or product enhancements ahead of rapid technological change in the market for subwavelength solutions, our operating results could decline and we could lose our competitive positionWe must continually devote significant engineering resources to enable us to introduce new technologies and software products or product enhancements to address the evolving needs of key markets within the semiconductor industry in solving the subwavelength gap problem. We must introduce these innovations and the key markets within the semiconductor industry must adopt them before changes in the semiconductor industry, such as the introduction by our current and potential competitors of more advanced products or the emergence of alternative technologies, render the innovations obsolete, which could cause us to lose our competitive position. These innovations are inherently complex, require long development cycles and a substantial investment before we can determine their commercial viability. Moreover, designers, mask manufacturers and equipment manufacturers must each respond to the demand of the market to design and manufacture masks and equipment for increasingly smaller and complex semiconductors. Our innovations must be viable and meet the needs of these key markets within the semicondutor industry before the consumer market demands even smaller semiconductors, rendering the innovations obsolete. We may not have the financial resources necessary to fund any future innovations. In addition, any revenue that we receive from enhancements or new generations of our proprietary technologies and software products may be less than the costs of development. Fluctuations in our quarterly operating results may cause our stock price to declineIt is likely that our future quarterly operating results may fluctuate from time to time and may not meet the expectations of securities analysts and investors in some future period. As a result, the price of our common stock could decline. Historically, our quarterly operating results have fluctuated. We may experience significant fluctuations in future quarterly operating results. The following factors may cause these fluctuations: . the timing and structure of our product license agreements; . changes in our pricing policies or those of our competitors; and . changes in the level of our operating expenses to support our projected growth. We intend to pursue new, and maintain our current, industry partner relationships, which could substantially divert management attention and resources, with no guarantee of successWe expect to derive significant benefits, including increased revenue and customer awareness, from our current and potential industry partner relationships. In our pursuit to maintain and establish partner relationships within each of the key markets in the semiconductor industry, we could expend significant management attention, resources and sales personnel efforts, with no guarantee of success. To establish and maintain our partner relationships, we expend our limited financial resources on increasing our sales and business development personnel, trade shows and marketing within trade publications. If we did not have to pursue potential industry partners, we could focus these resources exclusively on direct sales to our customers. In addition, through our partner relationships, our partners resell, market, either jointly with us or unilaterally, and promote our technologies and products. If these relationships terminate, such as due to our material breach of the contracts or the partners' election to cancel the contract, which generally is permissible with prior notice to us, we would have to increase our own limited marketing and sales resources for these activities. Further, we may be unable to enter into new industry partner relationships if any of the following occur: . current or potential industry partners develop their own solutions to the subwavelength gap problem; or . our current or potential competitors establish relationships with industry partners with which we seek to establish a relationship. 9 We have only recently entered into many of our current partner relationships. These relationships may not continue or they may not be successful. We also may be unable to find suitable additional industry partners. To date, we have entered into agreements with industry partners, including: . Cadence in the design market; . DuPont Photomask and Photronics in the mask manufacturing market; and . Applied Materials, KLA-Tencor and Zygo Corporation in the semiconductor equipment market. Many of our current competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we do and as a result, they may acquire a significant market share before we Our current competitors, or alliances among these competitors, may rapidly acquire significant market share. These competitors may have greater name recognition and more customers which they could use to gain market share to our detriment. We encounter direct competition from other direct providers of phase shifting, OPC and manufacturing data technologies. These competitors include such companies as Avant! and Mentor Graphics. We also compete with companies that have developed or have the ability to develop their own proprietary phase shifting and OPC solutions, such as IBM. These companies may wish to promote their internally developed products and may be reluctant to purchase products from us or other independent vendors. Our competitors may offer a wider range of products than we do and thus may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. These competitors may also be able to undertake more extensive promotional activities, offer more attractive terms to customers than we do and adopt more aggressive pricing policies. Moreover, our competitors may establish relationships among themselves or with industry partners to enhance their services, including industry partners with which we may desire to establish a relationship. The market for software solutions that address the subwavelength gap problem is new and rapidly evolving. We expect competition to intensify in the future, which could slow our ability to grow or execute our strategyWe believe that the demand for solutions to the subwavelength gap problem may encourage many competitors to enter into our market. As the market for software solutions to the subwavelength gap problem proliferates, if our competitors are able to attract industry partners or customers on a more accelerated pace than we can and retain them more effectively, we would not be able to grow and execute our strategy as quickly. In addition, if customer preferences shift away from our technologies and software products as a result of the increase in competition, we must develop new proprietary technologies and software products to address these new customer demands. This could result in the diversion of management attention or our development of new technologies and products may be blocked by other companies' patents. We must offer better products, customer support, prices and response time, or a combination of these factors, than those of our potential competitors. We are growing rapidly and must effectively manage and support our growth in order for our business strategy to succeedWe have grown rapidly and will need to continue to grow in all areas of operation. If we are unable to successfully integrate and support our existing and new employees into our operations, we may be unable to implement our business strategy in the time frame we anticipate, or at all. Due to our rapid growth in headcount, we outgrew our principal office facilities earlier than we expected. As a result, we recently relocated to San Jose, California and may need to relocate to a larger facility in the future, which could be difficult in the very competitive Silicon Valley office leasing market. In addition, building and managing the support necessary for our growth places significant demands on our management as well as our limited revenue. These demands have, and may continue to, divert these resources away from the continued growth of our business and 10 implementation of our business strategy. Further, we must adequately train our new personnel, especially our technical support personnel, to adequately, and accurately, respond to and support our industry partners and customers. If we fail to do this, it could lead to dissatisfaction among our partners or customers, which could slow our growth. We must continually attract and retain engineering personnel or we will be unable to execute our business strategyWe have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled engineers with appropriate qualifications to support our rapid growth and expansion. We must continually enhance and introduce new generations of our phase shifting and OPC technologies. As a result, our future success depends in part on our ability to identify, attract, retain and motivate qualified engineering personnel with the requisite educational background and industry experience. If we lose the services of a significant number of our engineers, it could disrupt our ability to implement our business strategy. Competition for qualified engineers is intense, especially in the Silicon Valley where we are located. Our chief executive officer and chief technology officer, as well as the co- founders of Transcription, are critical to our business and they may not remain with us in the futureOur future success will depend to a significant extent on the continued services of Y. C. (Buno) Pati, our President and Chief Executive Officer, Yao- Ting Wang, our Chief Technology Officer, Roger Sturgeon, one of our directors and a senior executive of Transcription and Kevin MacLean, Vice President and General Manager of Transcription. If we lose the services of any of these key executives, it could slow our product development processes and searching for their replacements could divert our other senior management's time and increase our operating expenses. In addition, our industry partners and customers could become concerned about our future operations, which could injure our reputation. We do not have long-term employment agreements with these executives and we do not maintain any key person life insurance policies on their lives. If we fail to protect our intellectual property rights, competitors may be able to use our technologies which could weaken our competitive position, reduce our revenue or increase our costsOur success depends heavily upon proprietary technologies, specifically our patent portfolio. The rights granted under our patents and patent applications may not provide competitive advantages to us. In addition, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. As a result of any such litigation, we could lose our proprietary rights and incur substantial unexpected operating costs. Litigation could also divert our resources, including our managerial and engineering resources. We rely primarily on a combination of patents, copyrights, trademarks and trade secrets to protect our proprietary rights and prevent competitors from using our proprietary technologies in their products. These laws and procedures provide only limited protection. We have been issued two U.S. patents, have five U.S. patent applications currently pending in the U.S. and nine foreign patent applications currently pending in selected foreign countries. Our pending patent applications may not result in issued patents, and our existing and future patents may not be sufficiently broad to protect our proprietary technologies. Also, patent protection in foreign countries may be limited or unavailable where we have filed for and need such protection. Furthermore, if we fail to adequately protect our trademark rights, this could impair our brand identity and ability to compete effectively. If we do not successfully protect our trademark rights, this could force us to incur costs to re-establish our name or our product names, including significant marketing activities. If third parties assert that our proprietary technologies and software products infringe their intellectual property rights, this could injure our reputation and limit our ability to license or sell our proprietary technologies or software productsThird parties, for competitive or other reasons, could assert that our proprietary technologies and software products infringe their intellectual property rights. These claims could injure our reputation and decrease or 11 block our ability to license or sell our software products. For example, on March 14, 2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two U.S. patents and have committed unfair or fraudulent business practice under the California Business and Professions Code. We are currently investigating the patents and allegations. The defense of these claims could divert management's attention from the day to day operations of our company, as well as divert resources from current planned uses, such as hiring and supporting additional engineering personnel. Litigation is inherently uncertain, and an adverse decision could limit our ability to offer some features in our OPC product. Third parties have advised us of literature which they believe to be relevant to our patents. We have not reviewed all of the information contained in this literature. It is possible that this literature or literature we may be advised of in the future could negatively affect the scope or enforceability of our present or future patents, and/or result in costly litigation. In addition, we are aware of and are evaluating certain patents with which our products, patents or patent applications may conflict. If any of these patents are found to be valid, and we are unable to license such patents on reasonable terms, or if our products, patents, or patent applications are found to conflict with these patents, we could be prevented from selling our products, our patents may be declared invalid or our patent applications may not result in issued patents. In addition, a company could invite us to take a patent license. If we do not take the license, the requesting company could contact our industry partners or customers and suggest that they not use our software products because we are not licensed under their patents. This action by the requesting company could affect our relationships with these industry partners and customers and may prevent future industry partners and customers from licensing our software products. The intensely competitive nature of our industry and the important nature of our technologies to our competitors' businesses may contribute to the likelihood of being subject to third party claims of this nature. Please see "Business--Intellectual Property." Any potential dispute involving our patents or other intellectual property could include our industry partners and customers, which could trigger our indemnification obligations with them and result in substantial expense to usIn any potential dispute involving our patents or other intellectual property, our licensees could also become the target of litigation. This could trigger our technical support and indemnification obligations in some of our license agreements which could result in substantial expense to us. In addition to the time and expense required for us to supply such support or indemnification to our licensees, any such litigation could severely disrupt or shut down the business of our licensees, which in turn could hurt our relations with our customers and cause the sale of our proprietary technologies and software products to decrease. Defects in our proprietary technologies and software products could decrease our revenue and our competitive market shareIf our industry partners and customers discover any defects after they implement our proprietary technologies and software products, these defects could significantly decrease the market acceptance and sales of our software products, which could decrease our competitive market share. Any actual or perceived defects with our proprietary technologies and software products may also hinder our ability to attract or retain industry partners or customers, leading to a decrease in our revenue. These defects are frequently found during the period following introduction of new products or enhancements to existing products. Despite testing prior to introduction, our software products may contain software errors not discovered until after customer implementation. If our software products contain errors or defects, it could require us to expend significant resources to alleviate these problems, which could result in the diversion of technical and other resources from our other development efforts. We face operational and financial risks associated with international operationsWe derive a significant portion of our revenue from international sales. We have only limited experience in developing, marketing, selling and supporting our proprietary technologies and software products 12 internationally and may not succeed in maintaining or expanding our international operations, which could slow our revenue growth. We are subject to risks inherent in doing business in international markets. These risks include: . fluctuations in exchange rates which may negatively affect our operating results; . greater difficulty in collecting accounts receivable resulting in longer collection periods; . compliance with and unexpected changes in a wide variety of foreign laws and regulatory environments with which we are not familiar; . export controls which could prevent us from shipping our software products into and from some markets; . changes in import/export duties and quotas could affect the competitive pricing of our software products and reduce our market share in some countries; and . economic or political instabilityWe may be unable to continue to market our proprietary technologies and software products successfully in international markets. We may need to raise additional funds to support our growth or execute our strategy and if we are unable to do so, we may be unable to develop or enhance our proprietary technologies and software products, respond to competitive pressures or acquire desired businesses or technologiesWe currently anticipate that our available cash resources, combined with the net proceeds from this offering, will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional funds in order to: . support more rapid expansion; . develop new or enhanced products; . respond to competitive pressures; or . acquire complementary businesses or technologiesThese factors will impact our future capital requirements and the adequacy of our available funds. We may need to raise additional funds through public or private financings, strategic relationships or other arrangements. We may be unable to consummate other potential acquisitions or investments or successfully integrate them with our business, which may slow our ability to expand the range of our proprietary technologies and software productsTo expand the range of our proprietary technologies and software products, we may acquire or make investments in additional complementary businesses, technologies or products if appropriate opportunities arise. We may be unable to identify suitable acquisition or investment candidates at reasonable prices or on reasonable terms, or consummate future acquisitions or investments, each of which could slow our growth strategy. If we do acquire additional companies or make other types of acquisitions, we may have difficulty integrating the acquired products, personnel or technologies. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Management will have broad discretion as to the use of proceeds from this offering and, as a result, we may not use the proceeds to the satisfaction of our stockholdersOur board of directors and management will have broad discretion in allocating the net proceeds of this offering. They may choose to allocate such proceeds in ways that do not yield a favorable return or are not 13 supported by our stockholders. We have designated only limited specific uses for the net proceeds from this offering. Please see "Use of Proceeds." The concentration of our capital stock ownership with insiders upon the completion of this offering will likely limit your ability to influence corporate mattersThe concentration of ownership of our outstanding capital stock with our directors and executive officers after this offering may limit your ability to influence corporate matters. Prior to the completion of this offering, our directors and executive officers, and their affiliates, beneficially own 67.0% of our outstanding capital stock, and we expect them to remain significant stockholders upon the completion of this offering. As a result, these stockholders, if acting together, will have the ability to control all matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any corporate transactions. We have anti-takeover defenses that could delay or prevent an acquisition of our companyProvisions of our certificate of incorporation and bylaws in effect after completion of this offering and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Please see "Description of Capital Stock." Negotiations between the underwriters and us determined the initial public offering price, but the market price may be less or may be volatile, and you may not be able to resell your shares at or above the initial public offering priceThis initial public offering price may vary from the market price of our common stock after the offering. The market price of our common stock may fluctuate significantly in response to factors, some of which are beyond our control, including: . actual or anticipated fluctuations in our operating results; . changes in market valuations of other technology companies; . conditions or trends in the semiconductor industry; . announcements by us or our competitors of significant technical innovations, contracts, acquisitions or partnerships; . additions or departures of key personnel; . any deviations in net revenue or in losses from levels expected by securities analysts; . volume fluctuations, which are particularly common among highly volatile securities of technology related companies; and . sales of substantial amounts of our common stock or other securities in the open marketGeneral political or economic conditions, such as recession or interest rate or currency rate fluctuations in the United States or abroad, also could cause the market price of our common stock to decline. Please see "Underwriting." Our stock price is likely to be extremely volatile as the market for technology companies' stock has recently experienced extreme price and volume fluctuationsVolatility in the market price of our common stock could result in securities class action litigation. Any litigation would likely result in substantial costs and a diversion of management's attention and resources. Despite the strong pattern of operating losses of technology companies, the market demand, valuation and trading prices of these companies have been high. At the same time, the share prices of these companies' stocks have been highly volatile and have recorded lows well below their historical highs. As a result, investors 14 in these companies often buy the stock at very high prices only to see the price drop substantially a short time later, resulting in an extreme drop in value in the stock holdings of these investors. Our stock may not trade at the same levels as other technology stocks. In addition, technology stocks in general may not sustain current market prices. An active public market for our common stock may not developAn active public market for our common stock may not develop or be sustained after this offering. The initial public offering price for the shares has | -0.202557 | 30.50 | 1527.45 | 240.974 | 68114956 | 23.340 | 974 | True | 2000 |
| 1 | 8.0 | 45.0 | NaN | 231.418979 | CONWAY | 20.0000 | 0.063 | 40.99 | 10938.82 | False | NASDQ | False | True | Finance | Banking | Other | NaN | NaN | Home BancShares Inc,Conway,AR | 0.155445 | NaN | Stephens Inc | 2145.32 | 15.918 | NaN | 0 | 4 | NaN | 18.0 | NaN | False | NaN | 0 | 4.750750 | 7.0010 | 7.001 | 19.003 | risk factors an investment in our common stock involves risks. before making an investment decision, you should carefully consider the risks described below, together with our consolidated financial statements and the related notes and the other information included in this prospectus. the discussion below presents material risks associated with an investment in our common stock. if any of the following risks actually occur, our business, financial condition and results of operations could be harmed. in such a case, the trading price of our common stock could decline, and you may lose all or part of your investment. the risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. see cautionary noteregarding forward-looking statements. risks related to our businessour decisions regarding credit risk could be inaccurate and our allowance for loan losses may be inadequate, which would materially and adversely affect our business, financial condition, results of operations and future prospects. management makes various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of our secured loans. we maintain an allowance for loan losses that we consider adequate to absorb future losses which may occur in our loan portfolio. in determining the size of the allowance, we analyze our loan portfolio based on our historical loss experience, volume and classification of loans, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information. as of march31, 2006, our allowance for loan losses was approximately $24.4million, or 1.96% of our total loans receivable. if our assumptions are incorrect, our current allowance may be insufficient to cover future loan losses, and increased loan loss reserves may be needed to respond to different economic conditions or adverse developments in our loan portfolio. in addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs based on judgments different than those of our management. any increase in our allowance for loan losses or loan charge-offs could have a negative effect on our operating results.because we have a high concentration of loans secured by real estate, a downturn in the real estate market could result in losses and materially and adversely affect business, financial condition, results of operations and future prospects. a significant portion of our loan portfolio is dependent on real estate. as of march31, 2006, approximately 82.2% of our loans had real estate as a primary or secondary component of collateral. the real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. an adverse change in the economy affecting values of real estate generally or in our primary markets specifically could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. furthermore, it is likely that we would be required to increase our provision for loan losses. if we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for loan losses, our profitability and financial condition could be adversely impacted.because we have a concentration of exposure to a number of individual borrowers, a significant loss on any of those loans could materially and adversely affect our business, financial condition, results of operations, and future prospects. we have a concentration of exposure to a number of individual borrowers. under applicable law, each of our bank subsidiaries is generally permitted to make loans to one borrowing relationship up to 20% of their respective capital in the case of our arkansas bank subsidiaries, and 15% of capital (25% on secured loans) in the case of our florida bank subsidiary. historically, when our bank subsidiaries have lending relationships that exceed their individual loan to one borrower limitation, the overline, or amount in excess of the subsidiarybanks legal lending limit, is participated to our other bank subsidiaries. as a result, on a consolidated basis we may have aggregate exposure to individual or related borrowers in excess of each individual bank subsidiarys legal lending limit. as of march31, 2006, the aggregate legal lending limit of our bank subsidiaries for secured loans was approximately $34.4million. currently, our board of directors has established an in-house consolidated lending limit of $16.0million to any one borrowing relationship without obtaining the approval of our chairman and our vice chairman. as of march31, 2006, we had 11 borrowing relationships where we had a commitment to loan in excess of $10.0million, with the aggregate amount of those commitments totaling approximately $180.0million. the largest of those commitments to one borrowing relationship was $27.3million, which is 16.1% of our consolidated shareholders equity. given the size of these loan relationships relative to our capital levels and earnings, a significant loss on any one of these loans could materially and adversely affect our business, financial condition, results of operations, and future prospects.the unexpected loss of key officers may materially and adversely affect our business, financial condition, results of operations and future prospects. our success depends significantly on our executive officers, especially john w. allison, ron w. strother, randy e. mayor, and on the presidents of our bank subsidiaries. our bank subsidiaries, in particular, rely heavily on their management teams relationships in their local communities to generate business. because we do not have employment agreements or non-compete agreements with our employees, our executive officers and bank presidents are free to resign at any time and accept an employment offer from another company, including a competitor. the loss of services from a member of our current management team may materially and adversely affect our business, financial condition, results of operations and future prospects.our growth and expansion strategy may not be successful and our market value and profitability may suffer. growth through the acquisition of banks, de novo branching, and the organization of new banks represents an important component of our business strategy. although we have no present plans to acquire any financial institution or financial services provider, any future acquisitions we might make will be accompanied by the risks commonly encountered in acquisitions. these risks include, among other things: credit risk associated with the acquired banks loans and investments; difficulty of integrating operations and personnel;and potential disruption of our ongoing business. we expect that competition for suitable acquisition candidates may be significant. we may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources. we cannot assure you that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions. in addition to the acquisition of existing financial institutions, we plan to continue de novo branching, and we may consider the organization of new banks in new market areas. we do not, however, have any current plans to organize a new bank. de novo branching and any acquisition or organization of a new bank carries with it numerous risks, including the following: the inability to obtain all required regulatory approvals; significant costs and anticipated operating losses associated with establishing a de novo branch or a new bank; the inability to secure the services of qualified senior management; the local market may not accept the services of a new bank owned and managed by a bank holding company headquartered outside of the market area of the new bank; the inability to obtain attractive locations within a new market at a reasonable cost;and the additional strain on management resources and internal systems and controls. we cannot assure that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions, de novo branching and the organization of new banks. our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and maintain our market value and profitability. we expect to continue to grow our assets and deposits, the products and services we offer, and the scale of our operations, generally, both internally and through acquisitions. if we continue to grow rapidly, we may not be able to control costs and maintain our asset quality. our ability to manage our growth successfully will depend on our ability to maintain cost controls and asset quality while attracting additional loans and deposits on favorable terms. if we grow too quickly and are not able to control costs and maintain asset quality, this rapid growth could materially and adversely affect our financial performance.there may be undiscovered risks or losses associated with our acquisitions of bank subsidiaries which would have a negative impact upon our future income. our growth strategy includes strategic acquisitions of bank subsidiaries. we acquired three bank subsidiaries in 2005, and will continue to consider strategic acquisitions, with a primary focus on arkansas and southwestern florida. in most cases, our acquisition of a bank includes the acquisition of all of the target banks assets and liabilities, including its loan portfolio. there may be instances when we, under our normal operating procedures, may find after the acquisition that there may be additional losses or undisclosed liabilities with respect to the assets and liabilities of the target bank, and, with respect to its loan portfolio, that the ability of a borrower to repay a loan may have become impaired, the quality of the value of the collateral securing a loan may fall below our standards, or the allowance for loan losses may not be adequate. one or more of these factors might cause us to have additional losses or liabilities, additional loan charge-offs, or increases in allowances for loan losses, which would have a negative impact upon our future income.an economic downturn, natural disaster or act of terrorism, especially one affecting our market areas, could adversely affect our business, financial condition, results of operations and future prospects. our business is affected by prevailing economic conditions in the united states, including inflation and unemployment rates, but is particularly subject to the local economies in arkansas, the florida keys and southwestern florida. our relatively small size and our geographic concentration expose us to greater risk of unfavorable local economic conditions than the larger national or regional banks in our market areas. adverse changes in local economic factors, such as population growth trends, income levels, deposits and housing starts, may adversely affect our operations. we are at risk of natural disaster or acts of terrorism, even if our market areas are not primarily affected. our florida market, in particular, is subject to risks from hurricanes, which may damage or dislocate our facilities, damage or destroy collateral, adversely affect the livelihood of borrowers or otherwise cause significant economic dislocation in areas we serve. if and when economic conditions deteriorate, either in our local market areas or nationwide, we may experience a reduction in the demand for our products and services and deterioration in the quality of our loan portfolio and consequently have a material and adverse effect on our business, financial condition, results of operations and future prospects.competition from other financial institutions may adversely affect our profitability. the banking business is highly competitive. we experience strong competition, not only from commercial banks, savings and loan associations, and credit unions, but also from mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other financial institutions operating in or near our market areas. we compete with these institutions both in attracting deposits and in making loans.many of our competitors are much larger national and regional financial institutions. we may face a competitive disadvantage against them as a result of our smaller size and resources and our lack of geographic diversification. we also compete against community banks that have strong local ties. these smaller institutions are likely to cater to the same small and mid-sized businesses that we target and to use a relationship-based approach similar to ours. in addition, our competitors may seek to gain market share by pricing below the current market rates for loans and paying higher rates for deposits. competitive pressures can adversely affect our profitability.our recent results do not indicate our future results, and may not provide guidance to assess the risk of an investment in our common stock. we are unlikely to sustain our historical rate of growth, and may not even be able to expand our business at all. further, our recent growth may distort some of our historical financial ratios and statistics. in the future, we may not have the benefit of several recently favorable factors, such as a strong residential housing market or the ability to find suitable expansion opportunities. various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. if we are not able to successfully grow our business, our financial condition and results of operations could be adversely affected.we may not be able to raise the additional capital we need to grow and, as a result, our ability to expand our operations could be materially impaired. federal and state regulatory authorities require us and our bank subsidiaries to maintain adequate levels of capital to support our operations. while we believe that our capital will be sufficient to support our current operations and anticipated expansion, factors such as faster than anticipated growth, reduced earning levels, operating losses, changes in economic conditions, revisions in regulatory requirements, or additional acquisition opportunities may lead us to seek additional capital. our ability to raise additional capital, if needed, will depend on our financial performance and on conditions in the capital markets at that time, which are outside our control. if we need additional capital but cannot raise it on terms acceptable to us, our ability to expand our operations could be materially impaired.we are considered by the federal reserve board to be a source of financial strength for white river bancshares and may be required to support its capital. we hold a 20% ownership interest in white river bancshares, inc., a bank holding company headquartered in fayetteville, arkansas. our minority ownership means that we lack effective power to control the operations of the holding company. we are, nevertheless, considered by the federal reserve board to be a source of financial strength for that holding company. as a result, we may be required to contribute sufficient funds for white river bancshares to meet regulatory capital requirements if it is unable to raise funds from other sources. an obligation to support white river bancshares may be required at times when, in the absence of this federal reserve board policy, we might not be inclined to provide it. as of and for the year ended december31, 2005, white river bancshares had total assets of $184.7million, total shareholders equity of $51.2million, and a net operating loss of $2.7million. the capital ratios for white river bancshares wholly-owned bank subsidiary, signature bank of arkansas, at year-end and the minimum ratios required to be considered well capitalized were: leverage ratio, 24.7% (5.0% required); tier1 capital ratio, 27.8% (6.0% required); and total risk-based capital ratio, 29.0% (10.0% required). we may be unable to, or choose not to, pay dividends on our common stock. although we have paid a quarterly dividend on our common stock since the second quarter of 2003 and expect to continue this practice, we cannot assure you of our ability to continue. our ability to pay dividends depends on the following factors, among others: we may not have sufficient earnings since our primary source of income, the payment of dividends to us by our bank subsidiaries, is subject to federal and state laws that limit the ability of these banks to pay dividends. federal reserve board policy requires bank holding companies to pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organizations expected future needs and financial condition. before dividends may be paid on our common stock in any year, dividends of $0.25per share must first be paid on our classa preferred stock and $0.57per share on our classb preferred stock. before dividends may be paid on our common stock in any year, payments must be made on our subordinated debentures. our board of directors may determine that, even though funds are available for dividend payments, retaining the funds for internal uses, such as expansion of our operations, is a better strategy. if we fail to pay dividends, capital appreciation, if any, of our common stock may be your sole opportunity for gains on your investment.our directors and executive officers own a significant portion of our common stock and can exert significant control over our business and corporate affairs. our directors and executive officers, as a group, will beneficially own approximately 38.6% of our common stock immediately following this offering. consequently, if they vote their shares in concert, they can significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors. the interests of our officers and directors may conflict with the interests of other holders of our common stock, and they may take actions affecting our company with which you disagree.the holders of our subordinated debentures have rights that are senior to those of our shareholders. we have $44.8million of subordinated debentures issued in connection with trust preferred securities. payments of the principal and interest on the trust preferred securities are unconditionally guaranteed by us. the subordinated debentures are senior to our shares of common stock. as a result, we must make payments on the subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to the holders of our common stock. we have the right to defer distributions on the subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of our common stock. risks related to our industryour profitability is vulnerable to interest rate fluctuations and monetary policy. most of our assets and liabilities are monetary in nature, and thus subject us to significant risks from changes in interest rates. consequently, our results of operations can be significantly affected by changes in interest rates and our ability to manage interest rate risk. changes in market interest rates, or changes in the relationships between short-term and long-term market interest rates, or changes in the relationship between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest paid on interest-bearing liabilities. this difference could result in an increase in interest expense relative to interest income or a decrease in interest rate spread. in addition to affecting our profitability, changes in interest rates can impact the valuation of our assets and liabilities.as of march31, 2006, our one-year ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities was 104.1% and our cumulative gap position was 2.3% of total earning assets, resulting in a minimum impact on earnings for various interest rate change scenarios. floating rate loans made up 39.1% of our $1.2billion loan portfolio. in addition, 70.7% of our loans receivable and 81.3% of our time deposits were scheduled to reprice within 12months and our other rate sensitive asset and rate sensitive liabilities composition is subject to change. significant composition changes in our rate sensitive assets or liabilities could result in a more unbalanced position and interest rate changes would have more of an impact to our earnings. our results of operations are also affected by the monetary policies of the federal reserve board. actions by the federal reserve board involving monetary policies could have an adverse effect on our deposit levels, loan demand or business and earnings.we are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability. we are a registered financial holding company primarily regulated by the federal reserve board. our bank subsidiaries are also primarily regulated by the federal reserve board, the federal deposit insurance corporation, and the arkansas state bank department or florida office of financial regulation. complying with banking industry regulations is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. we are also subject to capital requirements by our regulators. violations of various laws, even if unintentional, may result in significant fines or other penalties, including restrictions on branching or bank acquisitions. recently, banks generally have faced increased regulatory sanctions and scrutiny, particularly under the usa patriot act and statutes that promote customer privacy or seek to prevent money laundering. as regulation of the banking industry continues to evolve, we expect the costs of compliance to continue to increase and, thus, to affect our ability to operate profitably. upon completion of this offering, we will become subject to the many requirements of the securities exchange act of 1934, the sarbanes-oxley act of 2002, and the related rules and regulations promulgated by the securities and exchange commission and nasdaq. these laws and regulations will increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices. although we are accustomed to conducting business in a highly regulated environment, these laws and regulations have different requirements for compliance than we have previously experienced. our expenses for accounting, legal and consulting services will increase because of the new obligations we will face as a public company. in addition, the sudden application of these requirements to our business will result in some cultural adjustments and may strain our management resources. to date, we have not conducted a comprehensive review and confirmation of the adequacy of our existing systems and controls as will be required under section404 of the sarbanes-oxley act, and will not do so until after the completion of this offering. we may discover deficiencies in existing systems and controls. if that is the case, we intend to take the necessary steps to correct any deficiencies. these steps may be costly and strain our resources. a decline in the market price for our common stock may result if we are unable to comply with the sarbanes-oxley act. risks related to this offeringwe have broad discretion in the use of the net proceeds from this offering, and our use of those proceeds may not yield a favorable return on your investment. we will use the net proceeds of this offering for general corporate purposes, which may include, among other things, our working capital needs and providing investments in our bank subsidiaries. we may also use the net proceeds to finance bank acquisitions, though we have no present plans in that regard. thus, ourmanagement has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. we may not invest the proceeds of this offering effectively or in a manner that yields a favorable (or any) return on our common stock, and consequently, this could result in financial losses that could have a material adverse effect on our business or cause the price of our common stock to decline.there has been no prior active trading market for our common stock. we cannot assure you that an active public trading market will develop after the offering and, even if it does, our stock price may trade below the public offering price. there has been no public market for our common stock prior to this offering. an active trading market for our common stock may never develop or be sustained, which could affect your ability to sell your shares. even if a market develops for our common stock after the offering, the market price of our common stock may experience significant volatility. factors that may affect the price of our common stock include the depth and liquidity of the market for our common stock, investor perception of our financial strength, conditions in the banking industry such as credit quality and monetary policies, and general economic and market conditions. our quarterly operating results, changes in analysts earnings estimates, changes in general conditions in the economy or financial markets or other developments affecting us could cause the market price of our common stock to fluctuate substantially. in addition, the initial public offering price has been determined through negotiations between us and the underwriters, and may bear no relationship to the price at which the common stock will trade upon completion of the offering.investors in this offering will experience immediate and substantial dilution. purchasers in this offering will experience immediate dilution to the extent of the difference between the initial public offering price and the net tangible book value per share of our common stock. this dilution is estimated to be $8.36 per share, based on the initial offering price of $18.00 per share and our pro forma net tangible book value of $9.64per share as of march31, 2006. this per-share dilution takes into account the conversion to common stock of our outstanding shares of classa preferred stock and classb preferred stock, as it is our intent to effect those conversions as soon as practicable after the offering is completed. to the extent we raise additional capital by issuing equity securities in the future, our shareholders may experience additional dilution. our board of directors may determine, from time to time, a need to obtain additional capital through the issuance of additional shares of common stock or other securities. we may issue additional securities at prices or on terms less favorable than or equal to the public offering price and terms of this offering.the ability of our insiders or the holders of our classa and classb preferred stock to sell substantial amounts of common stock after this offering may depress the market price of our common stock or cause it to decline. there are three potentially significant sources of shares of our common stock that may come on the market after this offering: our directors and executive officers will beneficially own approximately 38.6% of our common stock immediately after this offering. although they are subject to lock-up agreements with our underwriters, which generally prevent them from selling their shares within 180days after the offering, the underwriters may release them from those obligations. in any event, after the lock-up agreements expire, approximately 6.7million additional shares of our common stock could become tradable by our directors and executive officers. we intend to require that all of the outstanding shares of our classa preferred stock be converted to common stock as soon as practicable after june6, 2006, the first date on which we can require conversion of those shares. we also intend, as soon as practicable after this offering, to require that our classb preferred stock be converted to common stock. conversion of our classa preferred stock and classb preferred stock will result in approximately 2,159,921shares of our common stock being issued. approximately 80,720additional shares of our common stock may be issued upon exercise of outstanding preferred stock options and the subsequent conversion to common stock of the preferred shares issued. most of the holders of the newly issued shares of common stock will be eligible immediately to sell their shares. we intend to register all common stock that we may issue upon exercise of outstanding options under our 2006 stock option and performance incentive plan. once we register these shares, they can be sold in the public market upon issuance, subject to restrictions under the securities laws and, if applicable, the lock-up agreements described above. as of march31, 2006, stock options to purchase968,244shares of our common stock had been granted under this plan, of which 481,224 are presently exercisable. sales of a significant number of shares of our common stock after this offering, or the expectation that these sales may occur, could depress the market price of our common stock. | 0.007266 | 17.09 | 1257.93 | 2190.648 | 45000000 | 142.890 | 2585 | False | 2006 |
| 2 | 9.0 | 247.1 | NaN | 452.480993 | BOISE | 26.1500 | 0.094 | 64.26 | 13712.21 | False | NYSE | False | True | Other | Construction Materials | Other | 615284.0 | 247058826.0 | Boise Cascade Co | 0.273154 | 3750588.0 | Bank of America Merrill Lynch\nGoldman Sachs & Co\nDeutsche Bank Securities Inc\nJP Morgan & Co Inc\nWells Fargo Securities LLC | 3143.18 | 116.936 | 15.0 | 77 | 8 | 3.0 | 21.0 | NaN | True | 615284.0 | 0 | 3.625500 | 8.7510 | 9.001 | 29.004 | risk factors investing in our common stock involves a high degree of risk. you should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before investing in our common stock. any of the following risks could materially and adversely affect our business, financial condition and results of operations. in such case, you may lose all or part of your original investment. risks relating to our businessmany of the products we manufacture or purchase and resell are commodities whose price is determined by the market's supply and demand for such products, and the markets in which we operate are cyclical and competitive. the depressed state of the housing, construction and home improvement markets could continue to adversely affect demand and pricing for our products. many of the building products we produce or distribute, including osb, plywood, lumber and particleboard, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently in an auction market, based on participants' perceptions of short-term supply and demand factors. at times, the price for any one or more of the products we produce may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities. therefore, our profitability with respect to these commodity products depends, in significant part, on managing our cost structure, particularly raw materials and labor, which represent the largest components of our operating costs. commodity wood product prices could be volatile in response to operating rates and inventory levels in various distribution channels. commodity price volatility affects our distribution business, with falling price environments generally causing reduced revenues and margins, resulting in substantial declines in profitability and possible net losses. historically, demand for the products we manufacture, as well as the products we purchase and distribute, has been closely correlated with new residential construction in the united states and, to a lesser extent, light commercial construction and residential repair and remodeling activity. new residential construction activity remained substantially below average historical levels during 2012 and so did demand for many of the products we manufacture and distribute. there is significant uncertainty regarding the timing and extent of any recovery in such construction activity and resulting product demand levels. demand for new residential construction is influenced by seasonal weather factors, mortgage availability and rates, unemployment levels, household formation rates, domestic population growth, immigration rates, residential vacancy and foreclosure rates, demand for second homes, existing home prices, consumer confidence and other general economic factors. wood products industry supply is influenced primarily by price-induced changes in the operating rates of existing facilities but is also influenced over time by the introduction of new product technologies, capacity additions and closures, restart of idled capacity and log availability. the balance of wood products supply and demand in the united states is also heavily influenced by imported products, principally from canada. we have very limited control of the foregoing, and as a result, our profitability and cash flow may fluctuate materially in response to changes in the supply and demand balance for our primary products.our industry is highly competitive. if we are unable to compete effectively, our sales, operating results and growth strategies could be negatively affected. the markets for the products we manufacture in our wood products segment are highly competitive. our competitors range from very large, fully integrated forest and building products firms to smaller firms that may manufacture only one or a few types of products. we also compete less directly with firms that manufacture substitutes for wood building products. certain mills operated by our competitors may be lower-cost manufacturers than the mills operated by us. the building products distribution industry that our building materials distribution segment competes in is highly fragmented and competitive, and the barriers to entry for local competitors are relatively low. competitive factors in our industry include pricing and availability of product, service and delivery capabilities, ability to assist customers with problem solving, customer relationships, geographic coverage and breadth of product offerings. also, financial stability is important to suppliers and customers in choosing distributors and allows for more favorable terms on which to obtain products from suppliers and sell products to customers. if our financial condition deteriorates in the future, our support from suppliers may be negatively affected. some of our competitors are larger companies and, therefore, have access to greater financial and other resources than we do. these resources may afford those competitors greater purchasing power, increased financial flexibility and more capital resources for expansion and improvement, which may enable those competitors to compete more effectively than we can.our manufacturing businesses may have difficulty obtaining wood fiber at favorable prices or at all. wood fiber is our principal raw material, which accounted for approximately 43% of the aggregate amount of materials, labor and other operating expenses (excluding depreciation), for our wood products segment in 2012. wood fiber is a commodity and prices have been cyclical historically in response to changes in domestic and foreign demand and supply. foreign demand for timber exports, particularly from china, increased timber costs in the western u.s. in 2010 and 2011 and negatively affected wood products manufacturers in the region. in 2012, china's demand for timber exports from the western u.s. declined from 2011 levels, but in the future we expect that the level of foreign demand for timber exports from the western u.s. will continue to fluctuate based on the economic activity in china and other pacific rim countries, currency exchange rates and the availability of timber supplies from other countries such as canada, russia and new zealand. sustained periods of high timber costs may impair the cost competitiveness of our manufacturing facilities. we currently enjoy the benefit of supply agreements put in place in 2005 following the sale of our timberlands (or successor arrangements), under which we purchase timber at market based prices. for 2012, approximately 33% of our timber was supplied pursuant to agreements assumed by (or replacement master supply agreements with) hancock natural resource group,inc. ("hancock"), the molpus woodlands groupllc ("molpus") and rayonier louisiana timberlands,llc, a timberland real estate investment trust ("rayonier"). the supply agreements with these parties terminate on december31, 2014, subject to additional one-year extensions unless notice is provided to the other party at least six months prior to expiration of the applicable agreement. if a counterparty to these agreements elects not to continue these agreements or we are unable to renegotiate these agreements on terms that are acceptable to us, we would need to locate a replacement supplier for our timber requirements, which could include private purchases with other suppliers, open-market purchases and purchases from governmental sources. if we are unable to locate a replacement supplier in a particular region to satisfy our timber needs at satisfactory prices, it could have an adverse effect on our results of operations. in 2012, we purchased approximately 21% of our timber from federal, state and local governments. in certain regions in which we operate, a substantial portion of our timber is purchased from governmental authorities. as a result, existing and future governmental regulation can affect our access to, and the cost of, such timber. future domestic or foreign legislation and litigation concerning the use of timberlands, timber harvest methodologies, forest road construction and maintenance, the protection of endangered species, forest-based carbon sequestration, the promotion of forest health and the response to and prevention of catastrophic wildfires can affect timber and fiber supply from both government and private lands. availability of harvested timber and fiber may be further limited by fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. availability of residual wood fiber for our particleboard operation has been negatively affected by significant mill closures and curtailments that have occurred among solid-wood product manufacturers. future development of wood cellulose biofuel or other new sources of wood fiber demand could interfere with our ability to source wood fiber or lead to significantly higher costs.significant changes in discount rates, actual investment return on pension assets and other factors could affect our earnings, equity and pension contributions in future periods. our earnings may be negatively affected by the amount of income or expense we record for our pension plans. gaap requires that we calculate income or expense for the plans using actuarial valuations. these valuations reflect assumptions relating to financial market and other economic conditions. changes in key economic indicators can change the assumptions. the most significant year-end assumptions used to estimate pension expense are the discount rate and the expected long-term rate of return on plan assets. in addition, we are required to make an annual measurement of plan assets and liabilities, which may result in a significant change to equity through a reduction or increase to "accumulated other comprehensive loss." a decline in the market value of the pension assets will increase our funding requirements. our pension plan liabilities are sensitive to changes in interest rates. as interest rates decrease, the liabilities increase, potentially increasing benefit costs and funding requirements. changes in demographics, including increased numbers of retirements or changes in life expectancy assumptions, may also increase the funding requirements of the obligations related to the pension plans. at december31, 2012, the net underfunded status of our defined benefit pension plans was $192.5million. if the status of our defined benefit plans continues to be underfunded, we anticipate significant future funding obligations, reducing the cash available for our business. for more discussion regarding how our financial statements can be affected by pension plan estimates, see "management's discussion and analysis of financial condition and results of operationscritical accounting estimatespensions."our recent significant capital investments have increased fixed costs, which could negatively affect our profitability. in the past three years, we have completed a number of capital investments, including significantly increasing our outdoor storage acreage and leasing additional warehouse space. in the future, we expect to make further capital investments, primarily related to internal veneer production. these significant capital investments have resulted in increased fixed costs, which could negatively affect our profitability if the housing market does not recover and revenues do not improve to offset our incremental fixed costs.a material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, including the demand from our building materials distribution business, reduce our sales, and/or negatively affect our financial results. any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including but not limited to: equipment failure, particularly a press at one of our major ewp production facilities; fires, floods, earthquakes, hurricanes or other catastrophes; unscheduled maintenance outages; utility and transportation infrastructure disruptions; labor difficulties; other operational problems; or ecoterrorism or threats of ecoterrorism. any downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned capital expenditures. if our machines or facilities were to incur significant downtime, our ability to satisfy customer requirements would be impaired, resulting in lower sales and net income. because approximately 39% of our wood products sales in the ltm period, including approximately 73% of our ewp sales, were to our building materials distribution business, a material disruption at our wood products facilities would also negatively impact our building materials distribution business. we are therefore exposed to a larger extent to the risk of disruption to our wood products manufacturing facilities due to our vertical integration and the resulting impact on our building materials distribution business. in addition, a number of our suppliers are subject to the manufacturing facility disruption risks noted above. our suppliers' inability to produce the necessary raw materials for our manufacturing processes or supply the finished goods that we distribute through our building materials distribution segment may adversely affect our results of operations, cash flows and financial position.adverse conditions may increase the credit risk from our customers. our building materials distribution and wood products segments extend credit to numerous customers who are heavily exposed to the effects of downturns in the housing market. unfavorable housing market conditions could result in financial failures of one or more of our significant customers, which could impair our ability to fully collect receivables from such customers and negatively affect our operating results, cash flow and liquidity.a significant portion of our sales are concentrated with a relatively small number of customers. for the year ended december31, 2012, our top ten customers represented approximately 29% of our sales, with one customer accounting for approximately 11% of sales. at december31, 2012 and june30, 2013, receivables from such customer accounted for approximately 14% and 16%, respectively, of total receivables. although we believe that our relationships with our customers are strong, the loss of one or more of these customers could have a material adverse effect on our operating results, cash flow and liquidity.our ability to service our indebtedness or to fund our other liquidity needs is subject to various risks. our ability to make scheduled payments on our indebtedness and fund other liquidity needs depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors, including the availability of financing in the banking and capital markets as well as the other risks described herein. in particular, demand for our products correlates to a significant degree to the level of residential construction activity in north america, which historically has been characterized by significant cyclicality. over the last several years, housing starts remained below historical levels. this reduced level of building was caused, in part, by an increase in the inventory of homes for sale, a more restrictive mortgage market, and a slowed economy. there can be no assurance as to when or if the housing market will rebound to historical levels. we have experienced significant losses from operations and used significant cash for operating activities in recent periods. we cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. if we are unable to service our debt obligations or to fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure, or liquidate some or all of our assets.we are subject to environmental regulation and environmental compliance expenditures, as well as other potential environmental liabilities. our businesses are subject to a wide range of general and industry-specific environmental laws and regulations, particularly with respect to air emissions, wastewater discharges, solid and hazardous waste management and site remediation. enactment of new environmental laws or regulations, including those aimed at addressing greenhouse gas emissions, or changes in existing laws or regulations might require significant expenditures or restrict operations. from time to time, legislative bodies and environmental regulatory agencies may promulgate new regulatory programs imposing significant incremental operating costs or capital costs on us. in december 2012, the u.s. environmental protection agency (the "epa") finalized a revised series of four regulations commonly referred to collectively as boiler mact, which are intended to regulate the emission of hazardous air pollutants from industrial boilers. facilities in our wood products segment will be subject to one or more of these regulations and must be in compliance with the applicable rules by early 2016. we are currently undertaking a complete review of the revised rules to assess how they will affect our operations. even with the revised rules finalized, considerable uncertainty still exists, as there will likely be legal challenges to the final rules from industry and/or environmental organizations. notwithstanding that uncertainty, we are proceeding with efforts to analyze the applicability and requirements of the regulations, including the capital and operating costs required to comply. at this time, we cannot accurately forecast the capital or operating cost changes that may result from compliance with the regulations. as an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. we could be found liable under these laws whether or not we knew of, or were responsible for, the presence of such substances. in some cases, this liability may exceed the value of the property itself. we may be unable to generate funds or other sources of liquidity and capital to fund unforeseen environmental liabilities or expenditures to the extent we are not indemnified by third parties. for example, in connection with the completion of our acquisition of the forest products and paper assets of officemax in 2004 (the "forest products acquisition"), officemax is generally obligated to indemnify us for hazardous substance releases and other environmental violations that occurred prior to the forest products acquisition. however, officemax may not have sufficient funds to fully satisfy its indemnification obligations when required, and in some cases, we may not be contractually entitled to indemnification by officemax. in addition, in connection with the sale of our paper and packaging& newsprint assets in 2008, boiseinc. and its affiliates assumed any and all environmental liabilities arising from our ownership or operation of the assets and businesses sold to them, and we believe we are entitled to indemnification by them from third-party claims in the event they fail to fully discharge any such liabilities on the basis of common law rules of indemnification. however, boiseinc. may not have sufficient funds to discharge its obligations when required or to indemnify us from third-party claims arising out of any such failure. for additional information on how environmental regulation and compliance affects our business, see "management's discussion and analysis of financial condition and results of operationsenvironmental." labor disruptions or increased labor costs could adversely affect our business. as of october13, 2013, we had approximately 5,210 employees. approximately 27% of these employees work pursuant to collective bargaining agreements. as of october13, 2013, we had nine collective bargaining agreements. two agreements, covering 375 employees at our facility in florien, louisiana, and 283 employees at our facility in oakdale, louisiana, expired on july15, 2013 but have been indefinitely extended by the parties, subject to either party submitting a ten-day written notice to terminate. we expect these two agreements to be negotiated together. if these agreements are not renewed or extended upon their expiration, we could experience a material labor disruption or significantly increased labor costs, which could prevent us from meeting customer demand or reduce our sales and profitability.if our long-lived assets become impaired, we may be required to record noncash impairment charges that could have a material impact on our results of operations. we review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. should the markets for our products deteriorate further or should we decide to invest capital differently than as expected, or should other cash flow assumptions change, it is possible that we will be required to record noncash impairment charges in the future with respect to the investments we have completed and expect to complete, which could have a material impact on our results of operations.the terms of our revolving credit facility and the indenture governing our senior notes restrict, and covenants contained in agreements governing indebtedness in the future may restrict, our ability to operate our business and to pursue our business strategies. our revolving credit facility and the indenture governing our senior notes contain, and any future indebtedness of ours may contain, a number of restrictive covenants that impose customary operating and financial restrictions on us. our revolving credit facility and the indenture governing our senior notes limit our ability and the ability of our restricted subsidiaries, among other things, to: incur additional debt; declare or pay dividends, redeem stock, or make other distributions to stockholders; make investments; create liens or use assets as security in other transactions; merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; enter into transactions with affiliates; sell or transfer certain assets; and make prepayments on our senior notes and subordinated indebtedness. in addition, our revolving credit facility provides that if an event of default occurs or excess availability under our revolving credit facility drops below a threshold amount equal to the greater of 10% of the aggregate commitments under our revolving credit facility or $35million (and until such time as excess availability for two consecutive fiscal months exceeds that threshold amount and no event of default has occurred and is continuing), we will be required to maintain a monthly minimum fixed coverage charge ratio of 1.0:1.0, determined on a trailing twelve-month basis. our failure to comply with any of these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. we may be unable to attract and retain key management and other key employees. our key managers are important to our success and may be difficult to replace because they have an average of 30years of experience in forest products manufacturing and building materials distribution. while our senior management team has considerable experience, certain members of our management team are nearing or have reached normal retirement age. the failure to successfully implement succession plans could result in inadequate depth of institutional knowledge or inadequate skill sets, which could adversely affect our business.our growth strategy includes pursuing strategic acquisitions. we may be unable to integrate efficiently acquired operations or complete successfully potential acquisitions. we may not be able to integrate the operations of acquired businesses, including chester wood productsllc and moncure plywoodllc, in an efficient and cost-effective manner or without significant disruption to our existing operations or realize expected synergies. acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, difficulties integrating acquired personnel into our business, the potential loss of key employees, customers or suppliers, difficulties in integrating different computer and accounting systems, exposure to unknown or unforeseen liabilities of acquired companies, and the diversion of management attention and resources from existing operations. in the future, we may be unable to complete successfully potential acquisitions due to multiple factors, such as issues related to regulatory review of the proposed transactions. we may also be required to incur additional debt in order to consummate acquisitions, which debt may be substantial and may limit our flexibility in using our cash flow from operations. our failure to integrate future acquired businesses effectively or to manage other consequences of our acquisitions could adversely affect our financial condition, operating results and cash flows.we rely on boiseinc. for many of our administrative services. in conjunction with the sale of our paper and packaging& newsprint assets in 2008, we entered into an outsourcing services agreement, under which boiseinc. provides a number of corporate staff services to us. these services include information technology, accounting and human resource transactional services. most of the boiseinc. staff that provides these services are providing the same services they provided when they were our employees. on october25, 2013, packaging corporation of america ("pca") acquired all of the outstanding common shares of boiseinc. the outsourcing services agreement remains in place after pca's acquisition of boiseinc. and is currently set to expire on february22, 2015. we cannot be assured that the staff providing such services will remain with pca after the acquisition, or that there will not be a disruption in the continuity or level of service provided. if pca is unwilling or unable to provide services at the same quality levels as those services have been provided in the past, or we are unable to develop and implement effective alternatives, if necessary, our business and compliance activities and results of operations could be substantially and negatively affected. risks relating to ownership of our common stockthe price of our common stock may fluctuate significantly, and you could lose all or part of your investment. volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for them. the market price for our common stock could fluctuate significantly for various reasons, including: our operating and financial performance and prospects; our quarterly or annual earnings or those of other companies in our industry; the public's reaction to our press releases, our other public announcements and our filings with the sec; changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies in our industry; the failure of research analysts to cover our common stock; general economic, industry and market conditions; strategic actions by us, our customers or our competitors, such as acquisitions or restructurings; new laws or regulations or new interpretations of existing laws or regulations applicable to our business; changes in accounting standards, policies, guidance, interpretations or principles; material litigation or government investigations; changes in general conditions in the u.s. and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events; changes in key personnel; sales of common stock by us, our principal stockholder or members of our management team; termination of lock-up agreements with our management team and principal stockholder; the granting or exercise of employee stock options; volume of trading in our common stock; and the impact of the facts described elsewhere in "risk factors." in addition, in recent years, the stock market has regularly experienced significant price and volume fluctuations. this volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. the changes frequently appear to occur without regard to the operating performance of the affected companies. hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially reduce our share price.the requirements of being a public company have increased certain of our costs and require significant management focus. we completed our initial public offering in february 2013 and boise cascade common stock is listed on the nyse. as a public company, our legal, accounting and other expenses associated with compliance-related and other activities have increased. for example, in connection with our initial public offering, we created new board committees and appointed an additional independent director to comply with the corporate governance requirements of the nyse. costs to obtain director and officer liability insurance contribute to our increased costs. as a result of the associated liability, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements, which could further increase our compliance costs. until certain applicable phase-in periods expire, we are exempt from certain corporate governance requirements since we were a "controlled company" within the meaning of the nyse rules and, as a result, you will not have the protections afforded by these corporate governance requirements. until july30, 2013, when bc holdings ceased to hold a majority of our common stock, we were considered a "controlled company" for the purposes of the nyse listing requirements. under these rules, a company of which more than 50% of the voting power is held by a group is a "controlled company" and may elect not to comply with certain nyse corporate governance requirements, including the requirements that our board of directors, our compensation committee and our corporate governance and nominating committee meet the standard of independence established by those corporate governance requirements. we have one year from the date we ceased to be a controlled company to fully comply with all of nyse's corporate governance requirements. accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the nyse's corporate governance requirements until the applicable phase-in periods expire.our significant stockholder, bc holdings, has the ability to influence corporate activities and its interests may not coincide with yours. after the consummation of this offering, bc holdings will beneficially own approximately 22.4% of our outstanding common stock, assuming the underwriters do not exercise their option to purchase additional shares. if the underwriters exercise in full their option to purchase additional shares, bc holdings will beneficially own approximately 19.8% of our outstanding common stock. as a result of its ownership, bc holdings (and madison dearborn as its indirect controlling equityholder) has the ability to influence the outcome of matters submitted to a vote of stockholders and, through our board of directors, the ability to influence decision-making with respect to our business direction and policies. matters over which bc holdings, directly or indirectly, has the ability to influence decision-making include: election of directors; mergers and other business combination transactions, including proposed transact | 0.105902 | 27.21 | 1492.56 | 1104.186 | 247058826 | 3273.496 | 1936 | False | 2013 |
| 3 | 6.0 | 36.0 | 2000.0 | 48.110260 | SANTA CLARA | 13.8125 | 0.434 | 97.32 | 10727.18 | False | NASDQ | True | False | Business Equipment -- Computers, Software, and Electronic Equipment | Electronic Equipment | Business Equipment, Telephone and Television Transmission | 18682.0 | 26640000.0 | Latitude Communications Inc | 0.017135 | 377400.0 | CS First Boston Corp | 2561.61 | 7.372 | 14.0 | 3 | 11 | 6.0 | 12.0 | 0.000000 | False | 18682.0 | 0 | 7.409818 | 9.0010 | 9.001 | 81.508 | RISK FACTORS You should carefully consider the following risks in addition to the remainder of this prospectus before purchasing our common stock. The risks and uncertainties described below are intended to highlight risks that are specific to us and are not the only ones that we face. Additional risks and uncertainties, such as those that generally apply to business enterprises in our industry, also may impair our business operations. Our future profitability is uncertain due to our limited operating historyWe have a limited operating history and cannot assure you that our revenue will continue to grow or that we will maintain profitability in the future. Our prospects must be considered in light of the risks and uncertainties encountered by companies in the early stages of development. We rely substantially on sales of our MeetingPlace products, which have limited market acceptanceIn addition, we are unable to predict our future product development, sales and marketing, and administrative expenses. To the extent that these expenses increase, we will need to increase revenue to sustain profitability. Our ability to increase revenue and sustain profitability also depends on the other risk factors described in this section. Our operating results may fluctuate significantlyOur operating results are difficult to predict. Our future quarterly operating results may fluctuate and may not meet the expectations of securities analysts or investors. If this occurs, the price of our common stock would likely decline. The factors that may cause fluctuations of our operating results include the following: . changes in our mix of revenues generated from product sales and services; . changes by existing customers in their levels of purchases of our products and services; . changes in our mix of sales channels through which our products and services are sold; and . changes in our mix of domestic and international salesOrders at the beginning of each quarter typically do not equal expected revenue for that quarter. In addition, a significant portion of our orders are received in the last month of each fiscal quarter. If we fail to ship products by the end of a quarter in which the order is received, or if our prospective customers delay their orders or delivery schedules until the following quarter, we may fail to meet our revenue objectives. 6 Our market is highly competitiveBecause of intense market competition, we may not be successful. Currently, our principal competitors include: . major telecommunications carriers that operate service bureaus for voice conferencing, such as AT&T Corp., MCI Worldcom, Inc. and Sprint Corporation; . private branch exchange, or PBX, vendors that sell systems with voice conferencing capabilities, such as Lucent Technologies Inc. and Nortel Networks; . providers of video conferencing systems such as PictureTel Corporation, Pinnacle Systems, Inc. and 8x8, Inc.; and . smaller start-up companies that offer web-based voice and data conferencing productsMany of these companies have longer operating histories, stronger brand names and significantly greater financial, technical, marketing and other resources than we do. These companies also may have existing relationships with many of our prospective customers. In addition, these companies may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirementsIn addition, we expect competition to persist and intensify in the future which could adversely affect our ability to increase sales, penetrate new markets and maintain average selling prices. In the future, we may experience competition from potential competitors that include: . networking companies, such as Cisco Systems, Inc., 3Com Corporation, Lucent Technologies Inc. and Nortel Networks that are focusing on enabling the transmission of voice over the Internet and that may offer voice and data conferencing functionality; and . collaborative software providers, such as Microsoft Corporation and Lotus Development Corporation, that are focusing on data conferencing products and that may in the future incorporate voice conferencing functionality into their products. Our market is in an early stage of development, and our products may not be adoptedIf the market for our integrated voice and data conferencing products fails to grow or grows more slowly than we anticipate, we may not be able to increase revenues or remain profitable. The market for integrated real-time voice and data conferencing is relatively new and rapidly evolving. Our ability to remain profitable depends in large part on the widespread adoption by end users of real-time voice and data conferencingWe will have to devote substantial resources to educate prospective customers about the uses and benefits of our products. In addition, businesses that have invested substantial resources in other conferencing products may be reluctant or slow to adopt our products, which might replace or compete with their existing systems. Our efforts to educate potential customers may not result in our products achieving market acceptance. 7 Rapid technological changes could cause our products to become obsolete or require us to redesign our productsThe market in which we compete is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and emerging industry standards. In particular, we expect that the growth of the Internet and Internet-based telephony applications, as well as general technology trends such as migrations to new operating systems, will require us to adapt our product to remain competitive. This adaptation could be costly and time-consuming. Our products could become obsolete and unmarketable if products using new technologies are introduced and new industry standards emerge. For example, the widespread acceptance of competing technologies, such as video conferencing and the transmission of voice over the Internet, could diminish demand for our current products. As a result, the life cycle of our products is difficult to estimateTo be successful, we will need to develop and introduce new products and product enhancements that respond to technological changes or evolving industry standards, such as the transmission of voice over the Internet, in a timely manner and on a cost effective basis. In addition, our current full care support agreements with our customers require us to deliver two product upgrades per year. We cannot assure you that we will successfully develop these types of products and product enhancements or that our products will achieve broad market acceptance. Our sales cycle is lengthy and unpredictableAny delay in sales of our products could cause our quarterly revenue and operating results to fluctuate. The typical sales cycle of our products is lengthy, generally between six to nine months, unpredictable, and involves significant investment decisions by prospective customers, as well as our education of potential customers regarding the use and benefits of our products. Furthermore, many of our prospective customers have neither budgeted expenses for voice and data conferencing systems nor have personnel specifically dedicated to procurement and implementation of these conferencing systems. As a result, our customers spend a substantial amount of time before purchasing our products in performing internal reviews and obtaining capital expenditure approvals. We cannot be certain that this cycle will not lengthen in the future. The emerging and evolving nature of the real-time voice and data conferencing market may lead to confusion in the market, which may cause prospective customers to postpone their purchase decisions. In addition, general concerns regarding Year 2000 compliance may further delay purchase decisions by prospective customers. If we fail to expand our sales and distribution channels, our business could sufferIf we are unable to expand our sales and distribution channels, we may not be able to increase revenue or achieve market acceptance of our MeetingPlace product. We have recently expanded our direct sales force and plan to recruit additional sales personnel. New sales personnel will require training and take time to achieve full productivity, and there is strong competition for qualified sales personnel in our business. In addition, we believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners. To date, we have entered into agreements with only a small number of these distribution partners. We cannot be certain that 8 we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners will devote adequate resources to selling our products. Furthermore, if our distribution partners fail to adequately market or support our products, the reputation of our products in the market may suffer. In addition, we will need to manage potential conflicts between our direct sales force and third-party reselling efforts. Our ability to expand into international markets is uncertainWe intend to continue to expand our operations into new international markets. In addition to general risks associated with international expansion, such as foreign currency fluctuations and political and economic instability, we face the following risks and uncertainties any of which could prevent us from selling our products in a particular country or harm our business operations once we have established operations in that country: . the difficulties and costs of localizing products for foreign markets, including the development of multilingual capabilities in our MeetingPlace system; . the need to modify our products to comply with local telecommunications certification requirements in each country; and . our lack of a direct sales presence in other countries, our need to establish relationships with distribution partners to sell our products in these markets and our reliance on the capabilities and performance of these distribution partners. If we fail to integrate our products with third-party technology, our sales could sufferOur products are designed to integrate with our customers' data and voice networks, as well as with enterprise applications such as browsers and collaborative software applications. If we are unable to integrate our products with these networks and systems, sales of our products could suffer In addition, we may be required to engage in costly and time-consuming redesigns of our products because of technology enhancements or upgrades of these systems. We may not be able to redesign our products or be certain that any of these redesigns will achieve market acceptance. In addition, we will need to continually modify our products as newer versions of the enterprise applications with which our products integrate are introduced. Our ability to do so largely depends on our ability to gain access to the advanced programming interfaces for these applications, and we cannot assure you that we will have access to necessary advanced programming interfaces in the future. We may experience difficulties managing our expected growthOur recent growth has strained, and we expect that any future growth will continue to strain, our management systems and resources, which could hinder our ability to continue to grow in the future. We may also experience difficulties meeting the demand for our products and services. If we are unable to provide training and support for our products, the implementation process will be longer and customer satisfaction may be lowerWe may not be able to install management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be 9 adequate to support our future operations. Competition for qualified personnel in the San Francisco Bay area, as well as other markets in which we recruit, is extremely intense and characterized by rapidly increasing salaries, which may increase our operating expenses or hinder our ability to recruit qualified candidates. Our business could suffer if we lose the services of our current management teamOur future success depends on the ability of our management to operate effectively, both individually and as a group. If we were to lose the services of any of these key employees we may encounter difficulties finding qualified personnel to replace them In addition, three of our seven executive officers joined us during the past 12 months. Accordingly, our executive officers' ability to function effectively as a management team remains unproven. The loss of our right to use technology licensed to us by third parties could harm our businessWe license technology that is incorporated into our products from third parties, including digital signal processing algorithms and the MeetingPlace server's operating system and relational database. Any interruption in the supply or support of any licensed software could disrupt our operations and delay our sales, unless and until we can replace the functionality provided by this licensed software. Because our products incorporate software developed and maintained by third parties, we depend on these third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. Any interruption in supply of components from outside manufacturers and suppliers could hinder our ability to ship products in a timely mannerWe rely on third parties to obtain most of the components of the MeetingPlace server and integrate them with other standard components, such as the central processing unit and disk drives. If these third parties are no longer able to supply and assemble these components or are unable to do so in a timely manner, we may experience delays in shipping our products and have to invest resources in finding an alternative manufacturer or manufacture our products internallyIn addition, we obtain key hardware components, including the processors and digital signal processing devices used in the MeetingPlace server, from sole source suppliers. In the past, we have experienced problems in obtaining some of these components in a timely manner from these sources, and we cannot be certain that we will be able to continue to obtain an adequate supply of these components in a timely manner or, if necessary, from alternative sources. If we are unable to obtain sufficient quantities of components or to locate alternative sources of supply, we may experience delays in shipping our products and incur additional costs to find an alternative manufacturer or manufacture our products internally. Our products may suffer from defects, errors or breaches of securitySoftware and hardware products as complex as ours are likely to contain undetected errors or defects, especially when first introduced or when new versions are released. Any errors or defects 10 that are discovered after commercial release could result in loss of revenue or delay in market acceptance, diversion of development resources, damage to our customer relationships or reputation or increased service and warranty cost. Our products may not be free from errors or defects after commercial shipments have begun, and we are aware of instances in which some of our customers have experienced product failures or errorsMany of our customers conduct confidential conferences, and transmit confidential data, using MeetingPlace. Concerns over the security of information sent over the Internet and the privacy of its users may inhibit the market acceptance of our products. In addition, unauthorized users in the past have gained, and in the future may be able to gain, access to our customers' MeetingPlace systems. Any compromise of security could deter people from using MeetingPlace and could harm our reputation and business and result in claims against us. We may be unable to adequately protect our proprietary rights, and we may be subject to infringement claimsUnauthorized parties may copy aspects of our products and obtain and use information that we regard as proprietary, which could cause our business to suffer. Furthermore, the laws of many foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States In the future, we may be subject to legal proceedings and claims for alleged infringement of third party proprietary rights. Any of these claims, even if not meritorious, could result in costly litigation, divert management's attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us. Parties making these claims may be able to obtain injunctive or other equitable relief, which could prevent us from selling our productsDell Computer Corporation has registered the "Latitude" mark for computers in the United States and in other countries. Dell's United States trademark registration and Canadian application have blocked our ability to register the "Latitude Communications" and "Latitude" with logo marks in the United States and the "Latitude Communications" mark in Canada. Since we believe that we have priority of trade name usage in the United States, we have petitioned to cancel Dell's United States registration and opposed its Canadian application. The outcome of these proceedings is uncertain. If Dell's registration for the "Latitude" mark is not canceled or if we are unable to obtain consent from Dell for our registration of our marks, we may not be able to register our marks and would have to rely solely on common law protection for these marks. We cannot assure you that we will be free from challenges of or obstacles to our use or registration of our marks. We are subject to government regulation, and our failure to comply with these regulations could harm our businessOur products are subject to a wide variety of safety, emissions and compatibility regulations imposed by governmental authorities in the United States or in other countries in which we sell our products. If we are unable to obtain necessary approvals or maintain compliance with the regulations of any particular jurisdiction, we may be prohibited from selling our products in that territory. In addition, to sell our products in many international markets, we are required to obtain certifications that are specific to the local telephony infrastructure. 11 We may be subject to claims related to Year 2000 issues, and Year 2000 concerns could adversely affect our revenuesMany currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, beginning on January 1, 2000, computer systems and software used by many companies and organizations in a wide variety of industries, including technology, transportation, utilities, finance and telecommunications, will produce erroneous results or fail unless they have been modified or upgraded to process date information correctly. Year 2000 compliance efforts may involve significant time and expense, and uncorrected problems could materially adversely affect our business, financial condition and operating results. We may face claims based on Year 2000 issues arising from the integration of multiple products within an overall system. We may also experience reduced sales of our products as potential customers reduce their budgets for voice and data conferencing products due to increased expenditures on their own Year 2000 compliance efforts. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure." Our stock price may be volatileWe expect that the market price of our common stock will fluctuate as a result of variations in our quarterly operating results. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to: . announcements of technological or competitive developments; . acquisitions or strategic alliances by us or our competitors; or . the gain or loss by us of significant orders. Our executive officers and directors and their affiliates own a large percentage of our voting stock and could control the voting power of the common stockOn completion of this offering, executive officers and directors and their affiliates will beneficially own, in the aggregate, approximately 58% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may delay, deter or prevent transactions that would result in the change of control, which in turn could reduce the market price of our common stock. Future sales of our common stock may depress our stock priceAfter this offering, we will have outstanding 18,581,657 shares of common stock. Sales of a substantial number of shares of common stock in the public market following this offering could materially adversely affect the market price of our common stock. All the shares sold in this offering will be freely tradable. Upon the expiration of arrangements between our stockholders and Latitude or the underwriters in which our stockholders have agreed not to sell or dispose of their Latitude common stock, all of the remaining 15,581,657 shares of common stock outstanding after this offering will be eligible for sale in the public market 180 days following the date of this prospectus. Of these shares, 11,682,572 shares will be subject to volume limitations under federal securities laws. 12 If our stockholders sell substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market, the market price of our common stock could fall. See "Shares Eligible for Future Sale" and "Underwriting." This prospectus contains forward-looking statements that involve risks and uncertaintiesWe have made forward-looking statements under the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve risks and uncertainties that may cause our business or financial results to materially differ from those expressed by the forward-looking statements We have identified forward-looking statements by using terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminologyWe are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. 13 | 0.122756 | 15.86 | 1358.82 | 60.054 | 26640000 | 33.042 | 842 | True | 1999 |
| 4 | NaN | 50.0 | NaN | 80.601321 | WATERTOWN | 18.1500 | -0.818 | NaN | 17640.17 | True | NASDQ | True | True | Healthcare, Medical Equipment, and Drugs | Pharmaceutical Products | Healthcare, Medical Equipment, and Drugs | 114399.8 | 50000000.0 | Syros Pharmaceuticals Inc | 0.002420 | NaN | Cowen & Co\nPiper Jaffray Cos\nJMP Securities LLC | 4834.93 | -47.743 | 17.0 | 0 | 4 | 14.0 | 12.5 | 0.588391 | False | 114399.8 | 1 | 3.625500 | 7.2510 | 7.501 | 14.502 | risk factors investing in our common stock involves a high degree of risk. before you decide to invest in our common stock, you should carefully consider the risks described below, together with the other information contained in this prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. if any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects could be harmed. in these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. risks related to our financial position and need for additional capitalwe have incurred significant losses since inception, expect to incur significant and increasing losses for at least the next several years, and may never achieve or maintain profitability. we have incurred significant annual net operating losses in every year since our inception. we expect to continue to incur significant and increasing net operating losses for at least the next several years. our net losses were $13.4million and $29.8million for the years ended december31, 2014 and 2015, respectively, and $10.6million for the three months ended march31, 2016. as of march31, 2016, we had an accumulated deficit of $64.1million. we have not generated any revenues from product sales, have not completed the development of any product candidate and may never have a product candidate approved for commercialization. we have financed our operations to date primarily through private placements of our preferred stock. we have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. our net losses may fluctuate significantly from quarter to quarter and year to year. net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders' (deficit) equity and working capital. we anticipate that our expenses will increase substantially if and as we: continue to develop and begin clinical trials with respect to sy-1425, including a phase2 clinical trial we expect to initiate in mid-2016; continue to develop sy-1365, including initiating a phase 1/2 clinical trial in the first half of 2017; initiate and continue research, preclinical and clinical development efforts for our preclinical programs; further develop our gene control platform; seek to identify and develop additional product candidates; acquire or in-license other product candidates or technologies; seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any; establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval, if any; require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization; maintain, expand and protect our intellectual property portfolio; hire and retain additional personnel, such as clinical, quality control and scientific personnel; add operational, financial and management information systems and personnel, including personnel to support our product development and help us comply with our obligations as a public company; and add equipment and physical infrastructure to support our research and development programs. our ability to become and remain profitable depends on our ability to generate revenue. we do not expect to generate significant revenue unless and until we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates. successful commercialization will require achievement of key milestones, including initiating and successfully completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve profitability. we and any future collaborators may never succeed in these activities and, even if we do, or any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations and cause a decline in the value of our common stock.we have a limited operating history, no products approved for sale and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability. we commenced operations in 2011. our operations to date have been limited to financing and staffing our company, developing our gene control platform and conducting preclinical research. we have not yet demonstrated an ability to successfully conduct clinical trials, obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical stage biopharmaceutical companies such as ours. any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products. we may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. we will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. we may not be successful in such a transition. we expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.we will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time consuming, expensive and uncertain process that takes years to complete. we expect our expenses to increase in connection with our ongoing activities, particularly as we initiate clinical trials of sy-1425, advance the development of sy-1365, initiate new research and preclinical development efforts and seek marketing approval for any product candidates that we successfully develop. moreover, under license agreements with various licensors, we are obligated to make milestone payments upon the successful completion of specified development and commercialization activities. in addition, if we obtain marketing approval for any product candidate that we may successfully develop, we may incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a future collaborator. furthermore, following the closing of this offering, we expect to incur significant additional costs associated with operating as a public company. accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. if we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. we plan to use the net proceeds of this offering primarily to fund our ongoing research and development efforts. we will be required to expend significant funds in order to advance the development of sy-1425 and sy-1365, as well as our other preclinical programs. in addition, while we may seek one or more collaborators for future development of our current product candidate or any future product candidates that we may develop for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. in any event, the net proceeds of this offering and our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of our product candidates or our other preclinical programs. accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. we do not have any committed external source of funds. adequate additional financing may not be available to us on acceptable terms, or at all. our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. we believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of march31, 2016, will enable us to fund our operating expenses and capital expenditure requirements at least through mid-2018. our estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. our future funding requirements, both short-term and long-term, will depend on many factors, including: the scope, progress, timing, costs and results of clinical trials of sy-1425 and sy-1365; research and preclinical development efforts for any future product candidates that we may develop; our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements; the number of future product candidates that we pursue and their development requirements; the outcome, timing and costs of seeking regulatory approvals; the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; the costs of acquiring potential new product candidates or technology; the costs of any physician education programs relating to selecting and treating genomically defined patient populations; the timing and amount of milestone and other payments due to licensors for patent and technology rights used in our development platform; revenue received from commercial sales, if any, of our current and future product candidates; our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure; the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and the costs of operating as a public company.raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates. we expect our expenses to increase in connection with our planned operations. to the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. in addition, debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. in addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development of our product candidates. if we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. if we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. risks related to the discovery, development and commercialization of product candidatesour approach to the discovery and development of product candidates based on our gene control platform is novel and unproven, and we do not know whether we will be able to develop any products of commercial value. we are focused on discovering and developing medicines for the treatment of cancer and other diseases based upon our gene control platform. we are leveraging our platform to create a pipeline of gene control drug candidates for genomically defined patients whose diseases have not been adequately addressed to date by other genomics approaches and to design and conduct efficient clinical trials with a higher likelihood of success. while we believe that applying our gene control platform to create medicines for genomically defined patient populations may potentially enable drug research and clinical development that is more efficient than conventional small molecule drug research and development, our approach is both novel and unproven. because our approach is both novel and unproven, the cost and time needed to develop our product candidates is difficult to predict, and our efforts may not result in the discovery and development of commercially viable medicines. we may also be incorrect about the effects of our product candidates on the diseases of genomically defined patient populations, which may limit the utility of our approach or the perception of the utility of our approach. furthermore, our estimates of genomically defined patient populations available for study and treatment may be lower than expected, which could adversely affect our ability to conduct clinical trials and may also adversely affect the size of any market for medicines we may successfully commercialize. we have not yet succeeded and may never succeed in demonstrating efficacy and safety for our current or any future product candidates in clinical trials or in obtaining marketing approval thereafter. for example, although we have discovered and evaluated compounds using our novel gene control platform, we have not yet advanced a compound into any phase of clinical development.our gene control platform may fail to help us discover and develop additional potential product candidates. a significant portion of the research that we are conducting involves identifying novel targets and points of intervention and developing new compounds using our gene control platform. the drug discovery that we are conducting using our gene control platform may not be successful in identifying compounds that have commercial value or therapeutic utility. our gene control platform may initially show promise in identifying potential product candidates, yet fail to yield viable product candidates for clinical development or commercialization for a number of reasons, including: compounds created through our gene control platform may not demonstrate efficacy, safety or tolerability; potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance; competitors may develop alternative therapies that render our potential product candidates non-competitive or less attractive; or a potential product candidate may not be capable of being produced at an acceptable cost. our research programs to identify new product candidates will require substantial technical, financial and human resources, and we may be unsuccessful in our efforts to identify new product candidates. if we are unable to identify suitable additional compounds for preclinical and clinical development, our ability to develop product candidates and obtain product revenues in future periods could be compromised, which could result in significant harm to our financial position and adversely impact our stock price.in the near term, we are dependent on the success of sy-1425 and sy-1365. if we are unable to initiate or complete the clinical development of, obtain marketing approval for or successfully commercialize sy-1425 or sy-1365, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed. we currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the development of sy-1425 and sy-1365. our prospects are substantially dependent on our ability, or that of any future collaborator, to develop, obtain marketing approval for and successfully commercialize product candidates in one or more disease indications. the success of sy-1425 and sy-1365 will depend on several factors, including the following: initiation and successful enrollment and completion of clinical trials; a safety, tolerability and efficacy profile that is satisfactory to the u.s. food and drug administration, or fda, or any comparable foreign regulatory authority for marketing approval; timely receipt of marketing approvals from applicable regulatory authorities; the performance of our future collaborators, if any; the extent of any required post-marketing approval commitments to applicable regulatory authorities; establishment of supply arrangements with third-party raw materials suppliers and manufacturers including with respect to the supply of active pharmaceutical ingredient for sy-1425; establishment of arrangements with third-party manufacturers to obtain finished drug product that is appropriately packaged for sale; adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales; obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the united states and internationally, including our ability to maintain our license agreement with tmrc, which we refer to as the tmrc license agreement; protection of our rights in our intellectual property portfolio; successful launch of commercial sales following any marketing approval; a continued acceptable safety profile following any marketing approval; commercial acceptance by patients, the medical community and third-party payors; successful identification of biomarkers for patient selection; continued availability of appropriate tissue samples to enable the identification of novel targets in genomically defined subsets of patients; and our ability to compete with other therapies. many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. if we are unable to develop, receive marketing approval for and successfully commercialize sy-1425 or sy-1365, on our own or with any future collaborator, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.if clinical trials of any future product candidates that we, or any future collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the fda and other regulators, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates. we, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the united states without obtaining marketing approval from the fda. foreign regulatory authorities, such as the european medicines agency, or the ema, impose similar requirements. we, and any future collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals. clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. we cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. the clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the fda or any comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. for example, a phase2 clinical trial of tamibarotene (sy-1425) for the treatment of late-stage non-small cell lung cancer, or nsclc, under a previous license between tmrc and a third party was terminated when interim data suggested that the primary endpoint of progression-free survival for 18months after starting therapy would not be reached. interim data also showed that tamibarotene combined with paclitaxel and carboplatin chemotherapy was associated with increased toxicity in this non-selected nsclc patient population. although we have no current plans to conduct studies of sy-1425 in nsclc or combine tamibarotene with paclitaxel and carboplatin in late-stage nsclc patients, we face a similar risk of failure in our planned clinical trials of sy-1425. it is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case. any inability to successfully complete preclinical and clinical development could result in additional costs to us, or any future collaborators, and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. moreover, if we, or any future collaborators, are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we or they contemplate, if we, or they, are unable to successfully complete clinical trials of our product candidates or other testing, or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators, may: incur additional unplanned costs; be delayed in obtaining marketing approval for our product candidates; not obtain marketing approval at all; obtain approval for indications or patient populations that are not as broad as intended or desired; obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings; be subject to additional post-marketing testing or other requirements; or be required to remove the product from the market after obtaining marketing approval. our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business.adverse events or undesirable side effects caused by, or other unexpected properties of, product candidates that we develop may be identified during development and could delay or prevent their marketing approval or limit their use. adverse events or undesirable side effects caused by, or other unexpected properties of, sy-1425, sy-1365 or any future product candidates that we may develop could cause us, any future collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of marketing approval by the fda or comparable foreign regulatory authorities. because gene control techniques are relatively new, side effects from gene control approaches may be unpredictable. tamibarotene has been observed to be associated with adverse events, such as mild or moderate dry skin, skin rash, headache and bone pain, as well as retinoic acid syndrome and elevated levels of cholesterol, lipids, liver function enzymes and white blood cells, which were severe in certain cases. furthermore, retinoids such as sy-1425 may cause birth defects and therefore may carry a warning on their label. other examples of retinoids, a class of chemical compounds that are related to vitamin a, include all trans retinoic acid or atra, retin-a, retinol (found in over-the-counter skin creams), isotretinoin and bexarotene. we have not yet tested sy-1365 in humans so the safety profile that sy-1365 will demonstrate in human clinical trials is unknown. if any of our product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any future collaborators, may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.if we, or any future collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of our current product candidate or any future product candidates that we, or any future collaborators, may develop, potential clinical development, marketing approval or commercialization of our product candidates could be delayed or prevented. we, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent clinical development, marketing approval or commercialization of our current product candidate or any future product candidates that we, or any future collaborators, may develop, including: regulators or institutional review boards may not authorize us, any future collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; we, or any future collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; clinical trials of our product candidates may produce unfavorable or inconclusive results; we, or any future collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon product development programs; the number of patients required for clinical trials of our product candidates may be larger than we, or any future collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any future collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any future collaborators, anticipate; our estimates of the genomically defined patient populations available for study may be higher than actual patient numbers and result in our inability to sufficiently enroll our trials; the cost of planned clinical trials of our product candidates may be greater than we anticipate; our third-party contractors or those of any future collaborators, including those manufacturing our product candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any future collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or any future collaborators in a timely manner or at all; patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial's duration; we, or any future collaborators, may have to delay, suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate; regulators or institutional review boards may require that we, or any future collaborators, or our or their investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate; the fda or comparable foreign regulatory authorities may disagree with our, or any future collaborators', clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials; the fda or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we, or any future collaborators, enter into agreements for clinical and commercial supplies; the supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supp | -0.522793 | 17.12 | 2071.50 | 91.323 | 50000000 | 0.317 | 2026 | True | 2016 |
| 5 | 9.0 | 116.3 | 5000.0 | 91.253925 | SAN JOSE | 14.0000 | 0.708 | 35.05 | 14988.55 | True | NYSE | False | True | Other | Construction | Other | NaN | NaN | UCP Inc | 0.115779 | NaN | Citi\nDeutsche Bank Securities Inc\nZelman Partners LLC | 3443.67 | -1.941 | NaN | 0 | 4 | NaN | 15.0 | NaN | False | NaN | 0 | 2.125250 | 8.5010 | 8.501 | 8.501 | risk factors an investment in our classa common stock involves a high degree of risk and should be considered highly speculative. before making an investment decision, you should carefully consider the following risk factors, which we believe address the material risks concerning our business and an investment in our classa common stock, together with the other information contained in this prospectus. if any of the risks discussed in this prospectus occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our classa common stock could decline significantly and you could lose all or a part of your investment. some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. please refer to the section entitled cautionary note concerning forward-looking statements. risks related to our business the homebuilding and land development industry in the united states has recently undergone a significant downturn, and the likelihood of a continued recovery is uncertain in the current state of the economy. the homebuilding and land development industry experienced substantial losses in connection with the recent downturn in the u.s.housing market and, in particular, in the northern california housing market. although the housing markets in the u.s. and northern california markets have begun to recover, we cannot predict whether and to what extent this recovery will continue or its timing. while some of the many negative factors that contributed to the housing downturn may have moderated in 2012, several remain, and they could return and/or intensify to inhibit any future improvement in housing market conditions. these negative factors include but are not limited to (a)weak general economic and employment growth that, among other things, restrains consumer incomes, consumer confidence and demand for homes; (b)elevated levels of mortgage loan delinquencies, defaults and foreclosures that could add to a shadow inventory of lender-owned homes that may be sold in competition with new and other resale homes at low distressed prices or that generate short sales activity at such price levels; (c)a significant number of homeowners whose outstanding principal balance on their mortgage loan exceeds the market value of their home, which undermines their ability to purchase another home that they otherwise might desire and be able to afford; (d)volatility and uncertainty in domestic and international financial, credit and consumer lending markets amid slow growth or recessionary conditions in various regions around the world; and (e)tight lending standards and practices for mortgage loans that limit consumers ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required down payment amounts, more conservative appraisals, higher loan-to-value ratios and extensive buyer income and asset documentation requirements. additional headwinds may come from the efforts and proposals of lawmakers to reduce the debt of the federal government through tax increases and/or spending cuts, and financial markets and businesses reactions to those efforts and proposals, which could impair economic growth. given these factors, there can be no guarantee that we will be successful in implementing our business plan or continue to operate profitably.our long-term growth depends, in part, upon our ability to successfully identify and acquire desirable land parcels for residential buildout, which may become limited due to a variety of factors. our future growth depends, in part, upon our ability to successfully identify and acquire attractive land parcels for development of single-family homes at reasonable prices, either by ourselves, through benchmark communities, or by our third-party homebuilder customers. our ability to acquire land parcels for new single-family homes may be adversely affected by changes in the general availability of land parcels, the willingness of land sellers to sell land parcels at reasonable prices, competition for available land parcels, availability of financing to acquire land parcels, zoning and other market conditions. if the supply of land parcels appropriate for development of single-family homes is limited because of these factors, or for any other reason, our ability to grow could be significantly limited, and our revenue and gross margin could decline. to the extent that we are unable to purchase land parcels or enter into new contracts or options for the purchase of land parcels at reasonable prices, our revenue and results of operations could be negatively impacted. our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us. the residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer confidence and income, availability and cost of financing for acquisitions, construction and mortgages, interest rate levels, inflation and demand for housing. the health of the residential homebuilding industry may also be significantly affected by shadow inventory levels during recessionary and recovery periods. shadow inventory refers to the number of homes with mortgages that are in some form of distress but that have not yet been listed for sale. shadow inventory can occur when lenders put properties that have been foreclosed or forfeited to lenders on the market gradually, rather than all at once, or delay the foreclosure process. a significant shadow inventory in our markets could, were it to be released, adversely impact home and land prices and demand for our homes and land, which would have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. in addition, an important segment of our end-purchaser and customer base consists of first-time and second-time move-up buyers, who often purchase homes subject to contingencies related to the sale of their existing homes. the difficulties facing these buyers in selling their homes during recessionary periods may adversely affect our sales. moreover, during such periods, we may need to reduce our sales prices and offer greater incentives to buyers to compete for sales that may result in reduced margins.our long-term growth depends, in part, upon our ability to acquire undeveloped land suitable for residential homebuilding at reasonable prices. the availability of partially finished developed lots and undeveloped land for purchase at reasonable prices depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers, inflation in land prices, zoning, allowable housing density, the ability to obtain building permits and other regulatory requirements. should suitable lots or land become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could be increased, perhaps substantially, which could adversely impact us. as competition for suitable land increases, the cost of acquiring partially finished developed lots and undeveloped lots and the cost of developing owned land could rise and the availability of suitable land at acceptable prices may decline, which could adversely impact us. the availability of suitable land assets could also affect the success of our land acquisition strategy, which may impact our ability to increase the number of actively selling communities, grow our revenue and margins, and achieve or maintain profitability. additionally, developing undeveloped land is capital intensive and time consuming. it is possible that we may develop land based upon forecasts and assumptions that prove to be inaccurate, resulting in projects that are not economically viable.because of the seasonal nature of our business our quarterly operating results fluctuate. as discussed under managements discussion and analysis of financial condition and results of operationsseasonality, we have experienced seasonal fluctuations in our quarterly operating results and capital requirements that can have a material impact on our results and our consolidated financial statements. we typically experience the highest new home order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. since it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur during the second half of the year. we expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry. we expect the traditional seasonality cycle and its impact on our results to become more prominent if and as the present housing recovery progresses and the homebuilding industry returns to a more normal operating environment, but we can make no assurances as to the degree to which our historical 24 seasonal patterns will occur in 2013 and beyond, if at all. this seasonality requires us to finance our construction activities significantly in advance of the receipt of sales proceeds. accordingly, there is a risk that we will invest significant amounts of capital in the acquisition and development of land and construction of homes that we do not sell at anticipated pricing levels or within anticipated time frames. if, due to market conditions, construction delays or other causes, we do not complete home sales at anticipated pricing levels or within anticipated time frames, our liquidity, financial condition and results of operations would be adversely affected.if the market value of our land inventory decreases, our results of operations could be adversely affected by impairments and write-downs. the market value of our land and housing inventories depends on market conditions. we acquire land for expansion into new markets and for replacement of land inventory and expansion within our current markets. there is an inherent risk that the value of the land owned by us may decline after purchase. the valuation of property is inherently subjective and based on the individual characteristics of each property. we may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. in addition, our deposits for lots controlled under purchase, option or similar contracts may be put at risk. factors such as changes in regulatory requirements and applicable laws (including in relation to building regulations, taxation and planning), political conditions, the condition of financial markets, both local and national economic conditions, the financial condition of customers, potentially adverse tax consequences, and interest and inflation rate fluctuations subject valuations to uncertainty. moreover, our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. if housing demand fails to meet our expectations when we acquired our inventory, our profitability may be adversely affected and we may not be able to recover our costs when we sell and build houses. in 2011, housing market conditions adversely impacted the anticipated timing and amount of sales at certain of our projects. we revised our expectations for the cash flows from these projects and evaluated whether each projects expected cash flows exceeded its carrying value. as of december31, 2011, after examining market data relating to two of our projects located in outlying areas of fresno, california, we concluded that our expected future cash flows from these projects (which can be very difficult to project, particularly estimated land development and off-site infrastructure costs in the absence of approved entitlements) would not exceed their carrying values. accordingly, we measured the fair values of these projects using discounted cash flow models and recorded a non-cash impairment charge of $5.2 million in cost of sales-land development for the year ended december31, 2011. we regularly review the value of our land holdings and continue to review our holdings on a periodic basis. further material write-downs and impairments in the value of our inventory may be required, and we may in the future sell land or homes at a loss, which could adversely affect our results of operations and financial condition.the estimates, forecasts and projections relating to our markets prepared by jbrec are based upon numerous assumptions and may not prove to be accurate. this prospectus contains estimates, forecasts and projections relating to our markets that were prepared for us for use in connection with this offering by jbrec, an independent research provider and consulting firm focused on the housing industry. see market opportunity. the estimates, forecasts and projections relate to, among other things, employment, demographics, household income, home sales prices and affordability. no assurance can be given that these estimates are, or that the forecasts and projections will prove to be, accurate. these estimates, forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of jbrec. no assurance can be given regarding the accuracy or appropriateness of the assumptions and judgments made, or the methodologies used, by jbrec. the application of alternative assumptions, judgments or methodologies could result in materially less favorable 25 estimates, forecasts and projections than those contained in this prospectus. other real estate experts have different views regarding these forecasts and projections that may be more positive or negative, including in terms of the timing, magnitude and direction of future changes. the forecasts and projections are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. jbrec has made these forecasts and projections based on studying the historical and current performance of the residential housing market and applying jbrecs qualitative knowledge about the residential housing market. the future is difficult to predict, particularly given that the economy and housing markets can be cyclical, subject to changing consumer and market psychology, and governmental policies related to mortgage regulations and interest rates. there will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. accordingly, the forecasts and projections included in this prospectus might not occur or might occur to a different extent or at a different time. for the foregoing reasons, neither we nor jbrec can provide any assurance that the estimates, forecasts and projections contained in this prospectus are accurate, actual outcomes may vary significantly from those contained or implied by the forecasts and projections, and you should not place undue reliance on these estimates, forecasts and projections. except as required by law, we are not obligated to, and do not intend to, update the statements in this prospectus to conform to actual outcomes or changes in our or jbrecs expectations.the homebuilding industry is highly competitive and if our competitors are more successful or offer better value to our customers our business could decline. we operate in a very competitive environment which is characterized by competition from a number of other homebuilders and land developers in each market in which we operate. additionally, there are relatively low barriers to entry into our business. we compete with numerous large national and regional homebuilding companies and with smaller local homebuilders and land developers for, among other things, home buyers, desirable land parcels, financing, raw materials and skilled management and labor resources. our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. increased competition could hurt our business, as it could prevent us from acquiring attractive land parcels on which to build homes or make such acquisitions more expensive, hinder our market share expansion and cause us to increase our selling incentives and reduce our prices. an oversupply of homes available for sale or discounting of home prices could adversely affect pricing for homes in the markets in which we operate. oversupply and price discounting have periodically adversely affected certain markets, and it is possible that our markets will be adversely affected by these factors in the future. we also compete with the resale, or previously owned, home market which has increased significantly due to the large number of homes that have been foreclosed on or could be foreclosed on due to the recent economic downturn. if we are unable to compete effectively in our markets, our business could decline disproportionately to our competitors, and our results of operations and financial condition could be adversely affected. we may be at a competitive disadvantage with regard to certain of our large national and regional homebuilding competitors whose operations are more geographically diversified than ours, as these competitors may be better able to withstand any future regional downturn in the housing market. we compete directly with a number of large national and regional homebuilders, many of which have longer operating histories and greater financial and operational resources than we do. many of these competitors also have longstanding relationships with subcontractors and suppliers in the markets in which we operate. this may give our competitors an advantage in marketing their products, securing materials and labor at lower prices and allowing their homes to be delivered to customers more quickly and at more favorable prices. this competition could reduce our market share and limit our ability to expand our business as we have planned. if home buyers are not able to obtain suitable mortgage financing, due to more stringent lending standards, rising interest rates, changes in regulation, reduced investor demand for mortgage loans and mortgage backed securities, changes in the relationship between fannie mae and freddie mac and the federal government or other reasons, our results of operations may decline. a substantial majority of home buyers finance their home purchases through lenders that provide mortgage financing. the availability of mortgage financing remains constrained, due in part to lower mortgage valuations on properties, various regulatory changes and lower risk appetite by lenders, with many lenders requiring increased levels of financial qualification, lending at lower multiples of income and requiring larger down payments. first-time home buyers are generally more affected by the availability of mortgage financing than other potential home buyers. these buyers are a key source of demand for new homes. a limited availability of home mortgage financing may adversely affect the volume of our home and land sales and the sales prices we achieve. additionally, housing demand is adversely affected by reduced availability of mortgage financing and factors that increase the upfront or monthly cost of financing a home, such as increases in interest rates, insurance premiums or limitations on mortgage interest deductibility. the recent decrease in the willingness and ability of lenders to make home mortgage loans, the tightening of lending standards and the reduction in the types of financing products available, have made it more difficult for home buyers to obtain acceptable financing. any substantial increase in mortgage interest rates or unavailability of mortgage financing may adversely affect the ability of prospective first-time and move-up home buyers to obtain financing for our homes, as well as adversely affect the ability of prospective move-up home buyers to sell their current homes. the housing industry is benefiting from the current low interest rate environment, which has allowed many home buyers to obtain mortgage financing with relatively low interest rates as compared to long-term historical averages. while the timing of any increase in interest rates is uncertain, it is widely expected that interest rates will increase, and any such increase will make mortgage financing more expensive and adversely affect the ability of home buyers to purchase our homes. the recent disruptions in the credit markets and the curtailed availability of mortgage financing has adversely affected, and is expected to continue to adversely affect, our business, prospects, liquidity, financial condition, results of operations and cash flows as compared to prior periods. beginning in 2008, the mortgage lending industry has experienced significant instability, beginning with increased defaults on sub-prime loans and other nonconforming loans and compounded by expectations of increasing interest payment requirements and further defaults. this in turn resulted in a decline in the market value of many mortgage loans and related securities. lenders, regulators and others questioned the adequacy of lending standards and other credit requirements for several loan products and programs offered in recent years. credit requirements have tightened, and investor demand for mortgage loans and mortgage-backed securities has declined. the deterioration in credit quality during the recent economic downturn caused almost all lenders to stop offering sub-prime mortgages and most other loan products that were not eligible for sale to fannie mae or freddie mac or loans that did not meet fha and veterans administration requirements. fewer loan products, tighter loan qualifications and a reduced willingness of lenders to make loans may continue to make it more difficult for certain buyers to finance the purchase of our homes. these factors may reduce the pool of qualified home buyers and make it more difficult to sell to first-time and move-up buyers who have historically made up a substantial part of our homebuilding customers. reductions in demand adversely affected our business and financial results during the downturn, and the duration and severity of some of their effects remain uncertain. the liquidity provided by fannie mae and freddie mac to the mortgage industry has been very important to the housing market. these entities have required substantial injections of capital from the federal government and may require additional government support in the future. several federal government officials have proposed changing the nature of the relationship between fannie mae and freddie mac and the federal government and even nationalizing or eliminating these entities entirely. if fannie mae and freddie mac were dissolved or if the federal government determined to stop providing liquidity support to the mortgage market, there would be a reduction in the availability of the financing provided by these institutions. any such reduction would likely have an adverse effect on interest rates, mortgage availability and our sales of new homes. if home buyers are not able to obtain fha financing due to further tightening of borrower eligibility and future restrictions imposed by lenders on fha financing, our results of operations may decline. the fha insures mortgage loans that generally have lower down payment requirements and qualification standards compared to conventional guidelines, and as a result, continue to be a particularly important source for financing the sale of our homes. in recent years, lenders have taken a more conservative view of fha guidelines causing significant tightening of borrower eligibility for approval. in the near future, further restrictions are expected on fha-insured loans, including limitations on seller-paid closing costs and concessions. this or any other restriction may negatively affect the availability or affordability of fha financing, which could adversely affect our ability to sell homes. in addition, changes in federal regulatory and fiscal policies aimed at aiding the home buying market (including a repeal of the home mortgage interest tax deduction) may also negatively affect potential home buyers ability to purchase homes.if suitable mortgage financing is not available to home buyers generally, our home buyers may not be able to sell their existing homes in order to buy a new home from us, which would adversely affect our results of operations. in each of our markets, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of home buyers to obtain or service mortgage debt. even if potential home buyers do not themselves need mortgage financing, where potential home buyers must sell their existing homes in order to buy a new home, increases in mortgage costs, lack of availability of mortgages and/or regulatory changes could prevent the buyers of potential home buyers existing homes from obtaining a mortgage, which would result in our potential customers inability to buy a new home from us. similar risks apply to those buyers who are awaiting delivery of their homes and are currently in backlog. our success depends, in part, on the ability of potential home buyers to obtain mortgages for the purchase of homes. if our customers (or potential buyers of our customers existing homes) cannot obtain suitable financing, our sales and results of operations could be adversely affected.new lending requirements pursuant to the dodd-frank wall street reform and consumer protection act could reduce the availability and increase the cost of mortgage financing, which could adversely affect out results of operations. in july 2010, the dodd-frank wall street reform and consumer protection act was signed into law. this legislation provides for a number of new requirements relating to residential mortgages and mortgage lending practices, many of which are to be developed further by implementing rules. these include, among others, minimum standards for mortgages and lender practices in making mortgages, limitations on certain fees and incentive arrangements, retention of credit risk and remedies for borrowers in foreclosure proceedings. the effect of such provisions on lending institutions will depend on the rules that are ultimately enacted. however, these requirements, as and when implemented, are expected to reduce the availability of loans to borrowers and/or increase the costs to borrowers to obtain such loans. any such reduction could result in a decline of our home and land sales, which could materially and adversely affect us.our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should experience a decline. our business strategy is focused on the acquisition of suitable land and the design, construction and sale of single-family homes in residential subdivisions, including planned communities, in northern california and washington state. in california, we principally operate in the central valley area, the monterey bay area and the south san francisco bay area; in washington state, we operate in the puget sound area. because our operations are concentrated in these areas, a prolonged economic downturn in one or more of these areas, particularly within california, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with more diversified operations. from 2007 to 2009, land values, the demand for new homes and home prices declined 28 substantially in california. in addition, the state of california has experienced severe budget shortfalls in recent years and has raised taxes and certain fees to offset the deficit. if these conditions in california persist or worsen, it would have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. if buyer demand for new homes in california or washington state decreases, home prices could stagnate or decline, which would have a material adverse effect on us.any limitation on, or reduction or elimination of, tax benefits associated with owning a home would have an adverse effect upon the demand for land and homes for residential development, which could be material to our business. changes in federal income tax laws may affect demand for new homes and land suitable for residential development. current tax laws generally permit significant expenses associated with owning a home, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individuals federal, and in many cases, state, taxable income. various proposals have been publicly discussed to limit mortgage interest deductions and to limit the exclusion of gain from the sale of a principal residence. for instance, under the american taxpayer relief act of 2012, which was signed into law in january 2013, the federal government enacted higher income tax rates and limits on the value of tax deductions for certain high-income individuals and households. if the federal government or a state government changes or further changes its income tax laws, as some lawmakers have proposed, by eliminating, limiting or substantially reducing these income tax benefits, without offsetting provisions, the after-tax cost of owning a new home would increase for many of our potential customers. enactment of any such proposal may have an adverse effect on the homebuilding industry in general, as the loss or reduction of homeowner tax deductions could decrease the demand for new homes and land suitable for residential development.difficulty in obtaining sufficient capital could result in an inability to acquire land for our developments or increased costs and delays in the completion of development projects. the homebuilding and land development industry is capital-intensive and requires significant up front expenditures to acquire land parcels and begin development. in addition, if housing markets are not favorable or permitting or development takes longer than anticipated, we may be required to hold our investments in land for extended periods of time. if internally generated funds are not sufficient, we may seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financings and/or securities offerings. the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. the credit and capital markets have recently experienced significant volatility. if we are required to seek additional financing to fund our operations, continued volatility in these markets may restrict our flexibility to access such financing. if we are not successful in obtaining sufficient capital to fund our planned capital and other expenditures, we may be unable to acquire land for development or to develop housing. additionally, if we cannot obtain additional financing to fund the purchase of land under our purchase or option contracts, we may incur contractual penalties and fees. any difficulty in obtaining sufficient capital for planned development expenditures could also cause project delays and any such delay could result in cost increases. any one or more of the foregoing events could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.we face potentially substantial risk with respect to our land and lot inventory. we intend to acquire land parcels for re | -0.007261 | 100.00 | 1615.41 | 267.320 | 116250000 | 92.726 | 2896 | False | 2013 |
| 6 | 41.0 | 150.0 | NaN | 161.103523 | FAIRPORT | 12.0000 | NaN | 175.49 | 12044.47 | False | NYSE | False | True | Finance | Trading | Other | NaN | NaN | Manning & Napier Inc | NaN | 1625000.0 | Bank of America Merrill Lynch | 2697.97 | -27.167 | NaN | 0 | 7 | NaN | 12.0 | NaN | False | NaN | 0 | 2.714714 | 0.0000 | 0.000 | 19.003 | risk factors investing in our classa common stock involves a high degree of risk. you should carefully consider the risks described below, together with the other information contained in this prospectus, before making your decision to invest in shares of our classa common stock. we cannot assure you that any of the events discussed in the risk factors below will not occur. these risks could have an adverse impact on our business, results of operations, financial condition and cash flows. if any of the following risks develops into an actual event, the trading price of our classa common stock could decline, and you could lose all or part of your investment. risks related to our business our revenues are dependent on the market value and composition of our aum, all of which are subject to fluctuation due to factors outside of our control. we derive the majority of our revenue from investment management fees, typically calculated as a percentage of the market value of our aum. as a result, our revenues are dependent on the value and composition of our aum, all of which are subject to fluctuation due to many factors, including: declines in prices of securities in our portfolios. the prices of the securities held in the portfolios we manage may decline due to any number of factors beyond our control, including, among others, declining stock or commodities markets, a general economic downturn, political uncertainty or acts of terrorism. the u.s. and global financial markets experienced extreme disruption in 2008 and the first quarter of 2009 and continue to be subject to an unusual amount of uncertainty and instability. current conditions affecting the global financial markets include persistently high unemployment rates in the united states, continued weakness in many real estate markets, increased austerity measures by several european governments, regional turmoil in the middle east, growing debt loads for many national and other governments and uncertainty about the consequences of governments discontinuing fiscal stimulus measures. such factors could cause an unusual degree of volatility and price declines for securities in the portfolios we manage. redemptions and other withdrawals. our investors generally may withdraw their funds at any time, on very short notice and without any significant penalty. a substantial portion of our revenue is derived from investment advisory agreements that are terminable by clients upon short notice or no notice and investors in the mutual funds we advise can redeem their investments in those funds at any time without prior notice. our growth in aum in recent years has included new clients and portfolios that may not have the same client retention characteristics as we have experienced in the past. in addition, in a declining stock market, the pace of redemptions could accelerate. investment performance. if our portfolios perform poorly, even over the short-term, as compared with our competitors or applicable third-party benchmarks, or the rankings of mutual funds we manage decline, we may lose existing aum and have difficulty attracting new assets. declines in fixed income markets. for fixed income investments, the value of our aum may decline as a result of changes in interest rates, available liquidity in the markets in which a security trades, an issuers actual or perceived creditworthiness, or an issuers ability to meet its obligations. if any of these factors cause a decline in our aum, it would result in lower investment management fees. if our revenues decline without a commensurate reduction in our expenses, our net income will be reduced and our business will be adversely affected. the loss of key investment professionals or members of our senior management team could have an adverse effect on our business. we depend on the skills and expertise of qualified investment professionals and our success depends on our ability to retain key employees, including members of our senior management team. our investment professionals possess substantial experience in investing and have been primarily responsible for the historically strong investment performance we have achieved. we particularly depend on our senior research group, which is a team of ten senior analysts who manage our portfolios, and our executive management team, which is a group of five individuals led by patrick cunningham, our chief executive officer. the loss of any of these key individuals could limit our ability to successfully execute our business strategy and could have an adverse effect on our business. any of our investment or management professionals may resign at any time, subject to various covenants not to compete with us. in addition, employee-owners are subject to additional covenants not to compete. we do not carry any key man insurance on any employees at this time. competition for qualified investment, management, marketing and client service professionals is intense and we may fail to successfully attract and retain qualified personnel in the future. our ability to attract and retain these personnel will depend heavily on the amount and structure of compensation and opportunities for equity ownership we offer. in connection with our transition to a public company, we intend to implement a compensation structure that uses a combination of cash and equity-based incentives as appropriate. we intend for overall compensation levels to remain commensurate with amounts paid to our named executive officers and other key employees in the past. however, our compensation may not be effective to recruit and retain the personnel we need, especially if our equity-based compensation does not return significant value to employees. any cost-reduction initiative or adjustments or reductions to compensation could negatively impact our ability to retain key personnel. in addition, changes to our management structure, corporate culture and corporate governance arrangements, including the changes associated with, and resulting from, our reorganization and this offering, could negatively impact our ability to retain key personnel.we derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice. we derive substantially all of our revenues from investment advisory and sub-advisor agreements, all of which are terminable by clients upon short notice or no notice and without any significant penalty. our investment management agreements with mutual funds, as required by law, are generally terminable by the funds board of directors or a vote of the majority of the funds outstanding voting securities on not more than 60 days written notice. after an initial term, each funds investment management agreement must be approved and renewed annually by such funds board, including by its independent members. in addition, all of our separate account clients and some of the pooled investment vehicles, including mutual funds, that we sub-advise have the ability to re-allocate all or any portion of the assets that we manage away from us at any time with little or no notice. these investment management agreements and mutual fund and collective investment trust client relationships may be terminated or not renewed for any number of reasons. the decrease in revenues that could result from the termination of a material client relationship or group of client relationships could have an adverse effect on our business.we may be required to reduce the fees we charge, or our fees may decline due to changes in our aum composition, which could have an adverse effect on our profit margins and results of operations. our current fee structure may be subject to downward pressure due to a variety of factors, including a trend in recent years toward lower fees in the investment management industry. we may be required to reduce fees with respect to both the separate accounts we manage and the mutual funds we advise. in addition, we may charge lower fees to attract future new business as compared to our existing business, which may result in us having to reduce our fees with respect to our existing business accordingly. the investment management 20 agreements pursuant to which we advise mutual funds are terminable on short notice and, after an initial term, are subject to an annual process of review and renewal by the funds boards. as part of that annual review process, the fund board considers, among other things, the level of compensation that the fund has been paying us for our services, and that process may result in the renegotiation of our fee structure or increase our obligations, thus increasing the cost of our performance. further, in recent periods our average fee rate has been declining due to higher average separately managed account sizes triggered by market appreciation and new separately managed account clients. any fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations.several of our portfolios involve investing principally in the securities of non-u.s. companies, which involve foreign currency exchange risk, and tax, political, social and economic uncertainties and risks. as of september30, 2011, approximately 37% of our aum across all of our portfolios was invested in securities of non-u.s. companies. fluctuations in foreign currency exchange rates could negatively affect the returns of our clients who are invested in these strategies. in addition, an increase in the value of the u.s. dollar relative to non-u.s. currencies is likely to result in a decrease in the u.s. dollar value of our aum, which, in turn, could result in lower revenue since we report our financial results in u.s. dollars. investments in non-u.s. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic uncertainty, particularly as a result of the recent decline in global economic conditions. declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could adversely affect clients interests in investing outside their home markets. many financial markets are not as developed, or as efficient, as the u.s. financial markets and, as a result, those markets may have limited liquidity and higher price volatility and lack established regulations. liquidity may also be adversely affected by political or economic events, government policies, social or civil unrest within a particular country, and our ability to dispose of an investment may also be adversely affected if we increase the size of our investments in smaller non-u.s. issuers. non-u.s. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there may be less publicly available information about such companies. these risks could adversely affect the performance of our strategies that are invested in securities of non-u.s. issuers and may be particularly acute in the emerging or less developed markets in which we invest.we derive a substantial portion of our revenues from our core non-u.s. equity portfolios. as of september30, 2011, approximately 32% of our aum were invested in our core non-u.s. equity portfolios. as a result, a substantial portion of our operating results depends upon the performance of our core non-u.s. equity portfolios, and our ability to retain client assets in such portfolios. if a significant portion of the investors in our core non-u.s. equity portfolios decide to withdraw their investments or terminate their investment management agreements for any reason, including poor investment performance or adverse market conditions, our revenues from these portfolios would decline, which could have an adverse effect on our earnings and financial condition.the investment performance and/or the growth of our aum may be constrained if appropriate investment opportunities are not available or if we close certain of our portfolios. our ability to deliver strong investment performance depends in large part on our ability to identify appropriate investment opportunities in which to invest client assets. if we are unable to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis, our investment performance could be adversely affected. the risk that sufficient appropriate investment opportunities may be unavailable is influenced by a number of factors, including general market conditions, and is likely to increase as and if our aum increases, particularly if these increases occur very rapidly. if we determine that sufficient investment opportunities are not available for some or all of our portfolios, or we believe that in order to remain competitive or continue to produce attractive returns from some 21 or all of our portfolios we should limit the growth of those strategies, as we have done in the past, we may choose to limit the growth of the portfolio by limiting the rate at which we accept additional client assets for management under the portfolio, closing the portfolio to all or substantially all new investors or otherwise taking action to limit the flow of assets into the portfolio. if we misjudge the point at which it would be optimal to limit access to or close a portfolio, the investment performance of the portfolio could be negatively impacted. in addition, if we close access to a portfolio, we may offer a new portfolio to our clients, but we cannot guarantee that such new portfolio will attract clients or perform in a manner consistent with the closed portfolio. limiting access to or closing a portfolio, while designed to enable us to remain competitive or continue to produce attractive returns, may be seen by some investors in our class a common stock solely as a loss of revenue growth opportunities in the short-term, which could lead to a decrease in the value of our class a common stock and a loss on your investment.the significant growth we have experienced over the past nine years has been and may continue to be difficult to sustain, and we may have difficulty managing our growth effectively. our aum have increased from $6.4 billion as of december31, 2002 to $38.8 billion as of september30, 2011. the rapid growth in our aum represents a significant rate of growth that has been and may continue to be difficult to sustain. in particular, as the absolute amount of our aum increases, it will be more difficult to maintain levels of growth similar to those we have experienced in the past. the future growth of our business will depend on, among other things: our ability to retain key investment professionals; our ability to attract investment professionals as necessary; our ability to devote sufficient resources to maintaining existing portfolios and to selectively develop new portfolios; our success in achieving superior investment performance from our portfolios; our ability to maintain and extend our distribution capabilities; our ability to deal with changing market conditions; our ability to maintain adequate financial and business controls; and our ability to comply with new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and the significant market and economic events of the last few years. unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our future profitability will be adversely affected. in addition, failure to successfully diversify into new asset classes may adversely affect our growth strategy and our future profitability.our portfolios may not obtain attractive returns under certain market conditions or at all. the goal of our investment process is to provide competitive absolute returns over full market cycles. accordingly, our portfolios may not perform well as compared to benchmarks or other investment managers strategies during certain periods of time or under certain market conditions, including periods of market uncertainty and volatility similar to what we have experienced in recent months. short-term underperformance may negatively affect our ability to retain clients and attract new clients. we are likely to be most out of favor when the markets are running on positive or negative price momentum and market prices become disconnected from underlying investment fundamentals, as was the case during the late 1990s as the technology market and mega cap stocks fueled the broad market upward. during and shortly 22 following such periods of relative under performance, we are likely to see our highest levels of client turnover, even if our absolute returns are positive. loss of client assets and the failure to attract new clients could adversely affect our revenues and growth.the historical returns of our existing portfolios may not be indicative of their future results or of the portfolios we may develop in the future. we have presented the historical returns of our existing portfolios under businessour competitive strengthstrack record of consistent investment excellence through multiple market cycles. the historical returns of our portfolios and the ratings and rankings we or the mutual funds that we advise have received in the past should not be considered indicative of the future results of these portfolios or of any other portfolios that we may develop in the future. the investment performance we achieve for our clients varies over time and the variance can be wide. the ratings and rankings we or the mutual funds we advise have received are typically revised monthly. the historical performance and ratings and rankings included in this prospectus are as of september30, 2011 and for periods then ended except where otherwise stated. the performance we have achieved and the ratings and rankings received at subsequent dates and for subsequent periods may be higher or lower and the difference could be material. our portfolios returns have benefited during some periods from investment opportunities and positive economic and market conditions. in other periods, such as in 2008 and the first quarter of 2009, general economic and market conditions have negatively affected our portfolios returns. these negative conditions may occur again, and in the future we may not be able to identify and invest in profitable investment opportunities within our current or future portfolios.we depend on third-party distribution sources to market our portfolios and access our client base. our ability to attract additional assets to manage is dependent on our access to third-party intermediaries.we gain access to mutual fund investors and some retail and institutional clients through third parties, including mutual fund platforms and financial intermediaries. as of september30, 2011, the largest relationship we have with a third party represents 5.3% of our total aum and the mutual fund platform representing the largest portion of our fund assets represents an additional 5.7% of our total aum. we compensate most of the intermediaries through which we gain access to investors in our mutual funds by paying fees, most of which are based on a percentage of assets invested in our mutual funds through that intermediary and with respect to which that intermediary provides services. these distribution sources and client bases may not continue to be accessible to us on terms we consider commercially reasonable, or at all. limiting or the total absence of such access could have an adverse effect on our results of operations. many of these consultants review and evaluate our products and our firm from time to time. poor reviews or evaluations of a particular product, portfolio or us as an investment management firm may result in client withdrawals or may impair our ability to attract new assets through these intermediaries. in addition, the recent economic downturn and consolidation in the broker-dealer industry may lead to reduced distribution access and increases in fees we are required to pay to intermediaries. if such increased fees should be required, refusal to pay them could restrict our access to those client bases while paying them could adversely affect our profitability.our efforts to establish new portfolios or new products or services may be unsuccessful and could negatively impact our results of operations and our reputation. as part of our growth strategy, we may seek to take advantage of opportunities to develop new portfolios consistent with our philosophy of managing portfolios to meet our clients objectives and using a team investment approach. the costs associated with establishing a new portfolio initially likely will exceed the revenues that the portfolio generates. if any such new portfolio performs poorly or fails to attract sufficient assets to manage, our results of operations could be negatively impacted. further, a new portfolios poor performance may negatively impact our reputation and the reputation of our other portfolios within the investment community. in addition, we have developed and may seek from time to time to develop new products and services to take advantage of opportunities involving technology, insurance, participant and plan sponsor 23 education and other products beyond investment management. the development of these products and services could involve investment of financial and management resources and may not be successful in developing client relationships, which could have an adverse effect on our business. the cost to develop these products initially will likely exceed the revenue they generate. if establishing new portfolios or offering new products or services requires hiring new personnel, to the extent we are unable to recruit and retain sufficient personnel, we may not be successful in further diversifying our portfolios, client assets and business, which could have an adverse effect on our business and future prospects.our failure to comply with investment guidelines set by our clients, including the boards of mutual funds, and limitations imposed by applicable law, could result in damage awards against us and a loss of our aum, either of which could adversely affect our reputation, results of operations or financial condition. when clients retain us to manage assets on their behalf, they generally specify certain guidelines regarding investment allocation that we are required to follow in managing their portfolios. in addition, the boards of mutual funds we manage generally establish similar guidelines regarding the investment of assets in those funds. we are also required to invest the mutual funds assets in accordance with limitations under the u.s. investment company act of 1940, as amended, or the 1940 act, and applicable provisions of the internal revenue code of 1986, as amended, or the code. other clients, such as plans subject to the employee retirement income security act of 1974, as amended, or erisa, or non-u.s. funds, require us to invest their assets in accordance with applicable law. our failure to comply with any of these guidelines and other limitations could result in losses to clients or investors in our products which, depending on the circumstances, could result in our obligation to make clients whole for such losses. if we believed that the circumstances did not justify a reimbursement, or clients believed the reimbursement we offered was insufficient, clients could seek to recover damages from us, withdraw assets from our products or terminate their investment management agreement with us. any of these events could harm our reputation and adversely affect our business.a change of control of our company could result in termination of our investment advisory agreements. under the 1940 act, each of the investment advisory agreements for securities and exchange commission, or sec, registered mutual funds that our affiliate, mna, advises automatically terminates in the event of its assignment, as defined under the 1940 act. if such an assignment were to occur, mna could continue to act as adviser to any such fund only if that funds board of directors and stockholders approved a new investment advisory agreement, except in the case of certain of the funds that we sub-advise for which only board approval would be necessary. in addition, under the u.s. investment advisers act of 1940, as amended, or the advisors act, each of the investment advisory agreements for the separate accounts we manage may not be assigned without the consent of the client. an assignment may occur under the 1940 act and the advisers act if, among other things, mna undergoes a change of control. in certain other cases, the investment advisory agreements for the separate accounts we manage require the consent of the client for any assignment. if such an assignment occurs, we cannot be certain that mna will be able to obtain the necessary approvals from the boards and stockholders of the mutual funds that it advises or the necessary consents from separate account clients.operational risks may disrupt our business, result in losses or limit our growth. we are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our operations, whether developed, owned and operated by us or by third parties. operational risks such as trading or operational errors or interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by fire, natural disaster or pandemic, power or telecommunications failure, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus adversely affect our business. some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which can magnify the cost of an error. although we have back-up systems in place, our back-up procedures and capabilities in the event of a failure or interruption may not be adequate, and the fact that we operate our business out of multiple physical locations may make such failures and interruptions difficult to 24 address on a timely and adequate basis. as and if our client base, number of portfolios and/or physical locations increase, developing and maintaining our operational systems and infrastructure may become increasingly challenging, which could constrain our ability to expand our business. any upgrades or expansions to our operations or technology to accommodate increased volumes of transactions or otherwise may require significant expenditures and may increase the probability that we will suffer system degradations and failures. in addition, if we are unsuccessful in executing any such upgrades or expansions, we may instead have to hire additional employees, which could increase operational risk due to human error. we also depend on our headquarters in fairport, new york, where a majority of our employees, administration and technology resources are located, for the continued operation of our business. any significant disruption to our headquarters could have an adverse effect on our business.we depend on third-party service providers for services that are important to our business, and an interruption or cessation of such services by any such service providers could have an adverse effect on our business. we depend on a number of service providers, including custodial and clearing firms, and vendors of communications and networking products and services. we cannot assure you that any of these providers will be able to continue to provide these services in an efficient manner or that they will be able to adequately expand their services to meet our needs. an interruption or malfunction in or the cessation of an important service by any third-party and our inability to make alternative arrangements in a timely manner, or at all, could have an adverse impact on our business, financial condition and operating results.employee misconduct could expose us to significant legal liability and reputational harm. we operate in an industry in which integrity and the confidence of our clients are of critical importance. accordingly, if any of our employees engage in illegal or suspicious activities or other misconduct, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, client relationships and ability to attract new clients. for example, our business often requires that we deal with confidential information. if our employees were to improperly use or disclose this information, even if inadvertently, we could suffer serious harm to our reputation, financial condition and current and future business relationships. it is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. in addition, the sec recently has increased its scrutiny of the use of non-public information obtained from corporate insiders by professional investors. misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in an adverse effect on our reputation and our business.improper disclosure of personal data could result in liability and harm our reputation. we and our service providers store and process personal client information. it is possible that the security controls, training and other processes over personal data may not prevent the improper disclosure of client information. such disclosure could harm our reputation as well and subject us to liability, resulting in increased costs or loss of revenue.failure to properly address conflicts of interest could harm our reputation, business and results of operations. as we expand the scope of our business and our client base, we must continue to monitor and address any conflicts between our interests and those of our clients. the sec and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented procedures and controls that we believe are reasonably designed to address these issues. however, appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which could adversely affect our reputation, business and results of operations. if our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses. in order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and control our exposure to operational, legal and reputational risks. our risk management methods may prove to be ineffective due to their design or implementation, or as a result of the lack of adequate, accurate or timely information or otherwise. if our risk management efforts are ineffective, we could suffer losses that could have an adverse effect on our financial condition or operating results. additionally, we could be subject to litigation, particularly from our clients, and sanctions or fines from regulators. our techniques for managing risks in client portfolios may not fully mitigate the risk exposure in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate.the cost of insuring our business is substantial and may increase. our insurance costs are substantial and can fluctuate significantly from year to year. in addition, certain insurance coverage may not be available or may only be available at prohibitive costs. as we renew our insurance policies, we may be subject to additional costs resulting from rising premiums, the assumption of higher deductibles or co-insurance liability and, to the extent certain of our mutual funds purchase separate director and officer or errors and omissions liability coverage, an increased risk of insurance companies disputing responsibility for joint claims. in addition, we intend to obtain additional liability insurance for our directors and officers in connection with this offering. higher insurance costs and incurred deductibles, as with any expense, would reduce our net income.we may elect to pursue growth in the united states and abroad through acquisitions or joint ventures, which | -0.151913 | 92.02 | 1261.15 | 178.833 | 150000000 | 329.992 | 2681 | False | 2011 |
| 7 | 3.0 | 60.5 | 10000.0 | NaN | ROCKVILLE | 9.0000 | -0.014 | 100.00 | 10877.81 | False | NASDQ | False | False | Finance | Insurance | Other | NaN | 60500000.0 | HealthExtras Inc | NaN | 880000.0 | Warburg Dillon Read Inc | 3336.16 | NaN | 6.0 | 0 | 8 | 1.0 | 11.0 | NaN | True | NaN | 0 | 7.438375 | 8.0010 | 8.001 | 59.507 | Risk Factors -------------------------------------------------------------------------------- You should consider carefully the following risk factors and all other information contained in this prospectus before purchasing our common stock Investing in our common stock involves a high degree of risk. Any of the following risks could materially harm our business, operating results and financial condition and could result in a complete loss of your investmentAdditional risks and uncertainties that are not yet identified or that we currently think are immaterial may also harm our business, operating results and financial condition in the future RISKS RELATED TO OUR BUSINESS Because we have a limited operating history, our business prospects are subject to a great deal of uncertaintyWhile our product development efforts have been ongoing for the past two years, we only began revenue generating activities in January 1999. This limited history of operating our business means that you have little basis on which to evaluate us and our prospects and that our business prospects are subject to a great deal of uncertainty and risksWe have not been profitable and may not become profitable in the future We incurred operating losses of approximately $4.7 million in 1997, $6.5 million in 1998 and $6.5 million for the nine months ended September 30, 1999, and at September 30, 1999, we had an accumulated deficit of $19.1 millionBecause we plan to continue to significantly increase our operating expenses in an attempt to increase our member base, we will need to generate significantly higher revenues to achieve profitability. Even if we achieve profitability, we may not be able to maintain profitability in the future. In addition, as our business model evolves, we expect to introduce a number of new products and services that may or may not be profitable for usOur future profitability is dependent, to a significant extent, upon increased consumer demand for additional products, which we are in the process of developing or may develop in the future Most of our revenue currently is derived from members purchasing membership programs which include disability benefits. We believe our future profitability is dependent upon achieving substantial increases in sales of our programs, including those providing excess health insurance coverage and other benefits we are developing or may develop in the future. To the extent these products include insurance features, they generally will require regulatory approvalsIf we do not achieve these increased sales, we may never achieve profitability If the sale of our membership programs over the Internet does not achieve widespread consumer acceptance, we may never achieve profitability To date, we primarily have promoted our membership programs through mailings to credit card or other customers of banks. However, we intend to significantly increase the distribution of our programs over the Internet. Thus, our future profitability is dependent in large part on our ability to achieve widespread consumer acceptance of purchasing our programs over the Internet. The development of an online market for programs, such as those we offer, has only recently begun, is rapidly evolving and likely will be characterized by an increasing number of market entrants. Therefore, there is significant uncertainty with respect to the viability and growth potential of this marketOur future growth, if any, will depend on, among other things, the following critical factors: . the growth of the Internet as a commerce medium generally, and as a market for consumer financial and insurance products and services specifically; . success in persuading consumers to purchase their own supplemental health and disability benefits, rather than, or in addition to, group insurance offered through their employer; 4 . success in cost-effectively marketing our programs to a sufficiently large number of consumers; . our ability to fulfill coverage requests on an efficient and timely basis; and . assuring consumers that the benefits in our programs purchased online are reliable.There can be no assurance that an online market for our programs will develop or that consumers will significantly increase their use of the Internet for obtaining the types of products and services included in the programs that we sell. If an online market for these products fails to develop, or develops more slowly than we expect, or if our programs do not achieve widespread market acceptance, the prospects for our achieving profitable operations will be significantly reducedIf we lose one or more of our marketing relationships, our access to potential customers would decline and sales and revenues would suffer A substantial majority of all of our programs sold to date have been through mailings sent by banks to their credit card and other customers. If we lose one or more of our marketing relationships with credit card issuers and are unable to replace those relationships with other marketing outlets, our access to potential customers would decline and sales and revenues would sufferIf we are not able to achieve a high level of brand recognition and consumer demand for our programs, we will not achieve the level of revenues we need to be profitable There are a growing number of websites that offer consumers access to information regarding insurance coverage alternatives and product pricing. Our programs may be considered to compete with these and other distribution channels for insurance products. We believe that broader recognition of the HealthExtras brand and increased consumer demand for our programs are essential to our future success. To attempt to achieve that recognition and demand, we intend to continue to pursue an aggressive brand-enhancement strategy consisting of our traditional print advertising, as well as national radio and television advertising, online marketing and promotional efforts. This effort will require significantly greater expenditures than we have been able to make to date. If these expenditures do not result in a sufficient increase in revenues, we will not achieve profitability. In addition, we may expand our programs to include additional types of insurance and services. A portion of any increased selling and marketing expenditures could be used to promote these new programs. We have no assurance that there will be any market acceptance for new programs. Failure to generate sufficient revenues to cover the related expenditures of new products would reduce our chances to become profitableThe loss of our relationship with Christopher Reeve to promote our programs could significantly impair our brand recognition and, thus, our ability to sell our programs Our agreement for Christopher Reeve to promote our programs currently expires in July 2002. The loss of the Christopher Reeve identification with our programs, upon termination of our contract or otherwise, could significantly reduce our ability to sell our programsIf we lose our relationships with our benefit providers, we could have difficulty meeting demand for the products and services included in the programs we sell Supplemental health and disability insurance are key components of our programs. These insurance coverages are provided by Reliance National Insurance Company. Our contract with Reliance National expires in February 2002 and can be terminated by Reliance National prior to expiration if, among other things, we breach the contract or are the subject of regulatory action or excessive consumer complaints. In addition, Reliance National could decide to stop issuing insurance for our programs at any time. If Reliance National suspended or terminated our contract with them, or stopped issuing policies, we would not be able to offer our programs for sale until we obtained another insurance company to provide the insurance coverage. Any other insurance company would have to obtain regulatory approval in the various states for those insurance products. This could require an extended period of time.In addition, should Reliance be unable to maintain an insurance rating satisfactory to our distribution partners and potential customers, our program membership could be reduced. Also, our contract with Reliance includes a right of first refusal provision which could limit our ability to incorporate insurance products of other companies in our programs. In such circumstances, our revenues and profitability could be adversely affected. The Reliance National Insurance Group is rated A- (Excellent) by A.M. Best Co. On October 21, 1999, however, A.M. Best placed that rating of Reliance "under review with negative implications," and indicated it expected to complete its review during the first quarter of 2000. 5We are also dependent on the other providers of benefits included in our programs. These benefits are provided pursuant to arrangements that may be terminated on relatively short notice. If we lose these relationships and are unable to replace them quickly and cost effectively, we would not be able to satisfy consumer demand for our programsWe may experience significant fluctuations in our quarterly results of operations which will make it difficult for investors to make reliable period- to-period comparisons and may contribute to volatility in our stock price Our quarterly expenses have fluctuated significantly in the past, and we expect our quarterly revenues and expenses to continue to fluctuate significantly in the future. The causes for fluctuations could include, among other factors: . changes in acceptance levels for our benefit program by consumers; . our levels of marketing expenditures; . renewal rate experience for our benefit programs; . the initiation of new or increased distribution methods, services and products by our competitors; . price competition by insurance companies in their sale of insurance products; and . the level of Internet use to purchase insurance or similar type products.We believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and not good indicators of our future performance Due to the above-mentioned and other factors, it is possible that in one or more future quarters our operating results will fall below the expectations of securities analysts and investors. If this happens, the trading price of our common stock would likely decreaseIf we do not manage our growth effectively, we will not be able to operate profitably We only began offering our programs this year, and we have been expanding our operations rapidly. Our growth strategy, if successful, will result in further expansion. We can achieve profitable operation, however, only if we are able to manage our growth effectively. Our growth in operations has placed significant demands on our management and other resources, which is likely to continueUnder these conditions, it is important for us to retain our existing management and to attract, hire and retain additional highly skilled and motivated officers, managers and employees and improve existing systems and/or implement new systems for: . transaction processing; . operational and financial management; and . training, integrating and managing our growing employee base.We may not be successful in managing or expanding our operations or maintaining adequate management, financial and operating systems and controls If the providers of the benefits included in our programs fail to provide those benefits, we could become subject to liability claims by our program members We arrange for the provision by others of the benefits included in our member programs. If the firms with which we have contracted to provide those benefits fail to provide them as required, or are negligent or otherwise culpable in providing them, we could become involved in any resulting claim or litigationCompetition could hinder our ability to build our membership base and prevent us from achieving profitable operations The markets for the benefit products and services included in the programs we offer are intensely competitive and characterized by changing technology, evolving regulatory requirements and changing consumer demands. If we are not able to compete in those markets and under those circumstances, our ability to build our membership base would be hindered and we would not be able to achieve profitable operations. We compete with both traditional insurance distributions channels, including insurance agents and brokers, new non-traditional channels such as commercial banks and savings and loan associations, and a growing number of distributors.We also potentially face competition from a number of large online services that have expertise in developing online commerce and in facilitating a high volume of Internet traffic. Other large companies with strong brand recognition, technical expertise and experience in online commerce and direct marketing also 6 could seek to compete in the online market for insurance and similar productsAny of these firms could seek to compete against us through traditional channels or by copying the products and services included in the programs we sell or our business model. There can be no assurance that we will be able to compete successfully with any of these current or potential competitorsRISKS RELATED TO REGULATION If we fail to comply with all of the various and complex laws and regulations governing our business, we could be subject to fines, additional licensing requirements or the inability to market in particular jurisdictions Complex laws, rules and regulations of each of the 50 states and the District of Columbia pertaining to insurance impose strict and substantial requirements on insurance coverage sold to consumers and businesses. Compliance with these laws, rules and regulations can be arduous and imposes significant costs. The underwriter of the insurance benefits included in HealthExtras programs is responsible for obtaining and maintaining regulatory approvals for those benefits. If the appropriate regulatory approvals for the insurance benefits included in our programs are not maintained, we would have to stop including those benefits. An independent licensed insurance agency is responsible for the solicitation of insurance benefits involved in HealthExtras programs. Each jurisdiction's insurance regulator typically has the power, among other things, . administer and enforce the laws and promulgate rules and regulations applicable to insurance, including the quotation of insurance premiums; . approve policy forms and regulate premium rates; . regulate how, by which personnel and under what circumstances, an insurance premium can be quoted and published; and . regulate the solicitation of insurance and license insurance companies, agents and brokers who solicit insurance.State insurance laws and regulations are complex and broad in scope and are subject to periodic modification as well as differing interpretations. There can be no assurance that insurance regulatory authorities in one or more states will not determine that the nature of our business requires us to be licensed under applicable insurance laws. A determination to that effect or that we or our business partners are not in compliance with applicable regulations could result in fines, additional licensing requirements or inability to market our programs in particular jurisdictions. Such penalties could significantly increase our general operating expenses and harm our business. In addition, even if the allegations in any regulatory or legal action against us turn out to be false, negative publicity relating to any such allegation could result in a loss of consumer confidence and significant damage to our brand. We believe that because many consumers and insurance companies are not yet comfortable with the concept of purchasing insurance online, the publicity relating to any such regulatory or legal issues could significantly reduce sales of our programsRegulation of the sale of insurance over the Internet and of electronic commerce generally is unsettled, and future laws, regulations and interpretations could hinder our ability to offer programs over the Internet The distribution of our programs including an insurance component over the Internet subjects us to additional risk as most insurance laws and regulations have not been modified to clarify or amend their application to Internet transactions. Currently, many state insurance regulators and legislators are exploring the need for specific regulation of insurance sales over the Internet. Such regulation could dampen the growth of the Internet as a means of providing insurance services. Moreover, the application of laws governing general commerce on the Internet remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing insurance, intellectual property, privacy and taxation apply to the Internet. In addition, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws and regulations that may impose additional burdens on companies conducting business over the Internet. Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could hinder our ability to offer programs over the Internet. 7 We could be subject to legal liability based upon the information on our websiteOur members may rely upon the information published on our website regarding insurance coverage, exclusions, limitations and ratings, and the other benefits included in our programs. To the extent that the information we provide is not accurate, we could be liable for damages. These types of claims could be time- consuming and expensive to defend, divert management's attention, and could cause consumers to lose confidence in our service. As a result, these types of claims, whether or not successful, could harm our businessRISKS RELATED TO THE INTERNET AND ELECTRONIC COMMERCE If we experience failures of, or capacity constraints in, our systems or the systems of third parties on which we rely, sales of our programs likely would be reduced and our reputation could be damaged We use both internally developed and third-party systems to operate the Internet aspects of our business. If the number of users of our service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure. We do not know whether we will be able to accurately project the rate or timing of any increases, or expand and upgrade our systems and infrastructure to accommodate any increases in a timely manner. Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our service has experienced periodic system interruptions, and it is likely that these interruptions will continue to occur from time to time. Additionally, our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, acts of vandalism and similar events. We may not carry sufficient business interruption insurance to compensate for losses that could occur. Any system failure that causes an interruption in service or decreases the responsiveness of our service would impair our revenue-generating capabilities, and could damage our reputation and our brand nameIf we fail to adapt to rapid technological change, our ability to compete will be significantly impeded Our market is characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. Our future success will depend, in part, on our ability to adapt to rapidly changing technologies by continually improving the features and reliability of our service. We may experience difficulties that could delay or prevent the successful introduction or marketing of new products and services. In addition, new enhancements must meet the requirements of our current and prospective subscribers and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our service or infrastructures or adapt our technology to respond to these changesIf we or our vendors experience Year 2000 problems, our ability to sell and service our programs would be disrupted The uncertainty posed by year 2000 issues could adversely affect our business in a number of significant ways. Although we believe that our internally developed systems and technology are year 2000 ready, our information technology system nevertheless could be substantially impaired or cease to operate due to year 2000 problems. Additionally, we rely on information technology supplied by third parties. Year 2000 problems that any third parties or we experience would disrupt our ability to sell and service our programsAdditionally, the Internet could face serious disruptions arising from year 2000 problems If we are unable to safeguard the security and privacy of our program members' information, our reputation would be damaged and we could be subject to litigation and liability A significant barrier to electronic commerce and online communications has been the need for secure transmission of confidential information over the Internet. Our ability to secure the transmission of confidential information over the Internet is essential in maintaining consumer confidence in our service. In addition, because we handle confidential and sensitive information about our program members, any security breaches would damage our reputation and could expose us to litigation and liability. We cannot guarantee that our systems will prevent security breachesIf the Internet does not continue to function to provide broad scale and dependable service as a transaction medium, we might not be able to achieve the substantial increases in sales of our programs which we believe are necessary to achieve profitability Our success will depend upon the maintenance of the Internet's infrastructure and its ability to cope with its significant growth and increased traffic. This will require a reliable network with the necessary 8 speed, data capacity and security, and the timely development of complementary products, such as high-speed modems, for providing reliable Internet access and services. Users of the Internet have experienced a variety of outages and other delays as a result of damage to portions of their infrastructure or that of their service providers, and we could face such outages and delays in the future. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards to handle increased levels of activity or due to increased government regulation. The adoption of new standards or government regulation may require us to incur substantial compliance costsRISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK Because our shares have not been publicly traded before this offering, the public offering price may not accurately reflect the trading price of our stock, and our stock price may be volatile Prior to this offering, you could not buy or sell our common stock publiclyAn active public market for our common stock may not develop or be sustained after this offering. Although the public offering price will be negotiated between the underwriters and us based on several factors, the market price after the offering may vary from the public offering price. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations. Recently, the stock market has experienced significant price and volume fluctuations, and the market prices of securities of Internet-related companies in particular have been highly volatile. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our common stock. In addition, the market prices for stocks of Internet-related companies, particularly following an initial public offering, have been known to reach levels that bear no relationship to the operating performance of such companies. Such market prices generally are not sustainable and are subject to wide variations. If our common stock trades to such levels following this offering, it likely will thereafter experience a material decline.In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation Securities litigation could result in substantial costs, divert management's attention and resources, and harm our financial condition and results of operationsFuture sales of our common stock may cause our stock price to decline Future sales of our common stock, or the availability of our common stock for sale, may cause our stock price to decline. After this offering, we will have 27,600,000 shares of common stock outstanding. The federal securities laws impose restrictions on the ability of stockholders who acquired their shares prior to this offering to resell their shares. Also, all holders of common stock or securities convertible into or exercisable or exchangeable for common stock issued prior to the offering and all of our officers have agreed, subject to certain limited exceptions, not to sell their shares for a period of 180 days after the date of this prospectus. After these restrictions lapse, the holders of these restricted shares may choose to sell some or all of their holdings. In addition, holders of substantially all of our shares of common stock outstanding prior to this offering have registration rights with respect to such sharesOur existing shareholders will own a substantial majority of our stock and will continue to control us after this offering; their interests may not be the same as that of our public stockholders Following this offering, Highland Investments, LLC and Health Partners will control 80.1% of our outstanding common stock. For information regarding the control of Highland Investments and Health Partners, see "Principal Stockholders." As a result, if these stockholders act together, they will be able to take any of the following actions without the approval of our public stockholders: . elect our directors; . amend certain provisions of our charter; . approve a merger, sale of assets or other major corporate transaction; . defeat any takeover attempt, even if it would be beneficial to our public stockholders; and . otherwise control the outcome of all matters submitted for a stockholder vote. 9 | NaN | 19.93 | 1388.91 | NaN | 60500000 | NaN | 1662 | False | 1999 |
| 8 | 9.0 | 139.1 | 10000.0 | 111.587367 | REDWOOD CITY | 17.0000 | 0.551 | 97.91 | 12268.63 | False | NASDQ | True | True | Business Equipment -- Computers, Software, and Electronic Equipment | Business Services | Business Equipment, Telephone and Television Transmission | 99999.5 | 139100000.0 | Bigband Networks Inc | 0.000000 | NaN | Morgan Stanley\nMerrill Lynch & Co Inc | 2416.15 | -25.367 | 14.0 | 18 | 5 | 12.0 | 13.0 | 0.375000 | False | 99999.5 | 1 | 8.601200 | 9.0010 | 9.001 | 43.006 | risk factors you should carefully consider the risks described below before making an investment decision. our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. in assessing the risks described below, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes, before deciding to purchase any shares of our common stock. risks related to our business we depend on the adoption of advanced technologies by cable operators and telephone companies for substantially all of our net revenues, and any decrease or delay in capital spending for these advanced technologies would harm our operating results, financial condition and cash flows. substantially all of our sales are dependent upon the adoption of advanced technologies by cable operators and telephone companies, and we expect these sales to continue to constitute a significant majority of our sales for the foreseeable future. demand for our products will depend on the magnitude and timing of capital spending by service providers on advanced technologies for constructing and upgrading their network infrastructure, and a reduction or delay in this spending could have a material adverse effect on our business. the capital spending patterns of our existing and potential customers are dependent on a variety of factors, including: available capital and access to financing; annual budget cycles; overall consumer demand for video, voice and data services and the acceptance of newly introduced services; competitive pressures, including pricing pressures; the impact of industry consolidation; the strategic focus of our customers and potential customers; technology adoption cycles and network architectures of service providers, and evolving industry standards that may impact them; the status of federal, local and foreign government regulation of telecommunications and television broadcasting, and regulatory approvals that our customers need to obtain; discretionary customer spending patterns; bankruptcies and financial restructurings within the industry; and general economic conditions. any slowdown or delay in the capital spending by service providers as a result of any of the above factors would likely have a significant impact on our quarterly revenue and profitability levels.our operating results are likely to fluctuate significantly and may fail to meet or exceed the expectations of securities analysts or investors or our guidance, causing our stock price to decline. our operating results have fluctuated in the past and are likely to continue to fluctuate, on an annual and a quarterly basis, as a result of a number of factors, many of which are outside of our control. these factors include: the level and timing of capital spending of our customers, both in the united states and in international markets; the timing, mix and amount of orders, especially from significant customers; 7 changes in market demand for our products; our ability to secure significant orders from telephone companies; our mix of products sold between video products, which generally have higher margins, and our cable modem termination system, or cmts, data products, which generally have lower margins; the mix of software and hardware products sold; our unpredictable and lengthy sales cycles, which typically range from nine to eighteen months; the timing of revenue recognition on sales arrangements, which may include multiple deliverables; new product introductions by our competitors; market acceptance of new or existing products offered by us or our customers; competitive market conditions, including pricing actions by our competitors; our ability to complete complex development of our software and hardware on a timely basis; our ability to design, install and receive customer acceptance of our products; unexpected changes in our operating expense; the potential loss of key manufacturer and supplier relationships; the cost and availability of components used in our products; changes in domestic and international regulatory environments; and the impact of new accounting rules. we establish our expenditure levels for product development and other operating expense based on projected sales levels, and our expenses are relatively fixed in the short term. accordingly, variations in the timing of our sales can cause significant fluctuations in operating results. as a result of all these factors, our operating results in one or more future periods may fail to meet or exceed the expectations of securities analysts or investors or our guidance, which would likely cause the trading price of our common stock to decline substantially.we anticipate that our gross margins will fluctuate with changes in our product mix and expected decreases in the average selling prices of our products, which may adversely impact our operating results. our industry has historically experienced a decrease in average selling prices. we anticipate that the average selling prices of our products will decrease in the future in response to competitive pricing pressures, increased sales discounts and new product introductions by our competitors. we may experience substantial decreases in future operating results due to the decrease of our average selling prices. to maintain our gross margin levels, we must develop and introduce on a timely basis new products and product enhancements as well as continually reduce our product costs. our failure to do so would likely cause our revenue and gross margins to decline, which could have a material adverse effect on our operating results and cause the price of our common stock to decline. we also anticipate that our gross margins will fluctuate from period to period as a result of the mix of products we sell in any given period, with our video products generally yielding higher gross margins than our data products. if our sales of these lower margin products significantly expand in future quarterly periods, our overall gross margin levels and operating results would be adversely impacted.our continued growth will depend significantly on our ability to deliver products that help enable telephone companies to provide video services. if the projected growth in demand for video services from telephone companies does not materialize or if these service providers find alternative methods of delivering video services, future sales of our video products will suffer. prior to 2006, our sales were principally to cable operators. in 2006, however, we generated significant sales from telephone companies. our growth is dependent on our ability to sell video products to telephone companies that are increasingly reliant on the delivery of video services to their customers. although a number of our 8 existing products are being deployed in these networks, we will need to devote considerable resources to obtain orders, qualify our products and hire knowledgeable personnel to address telephone company customers, each of which will require significant time and financial commitment. these efforts may not be successful in the near future, or at all. if technological advancements allow these telephone companies to provide video services without upgrading their current system infrastructure or that allow them a more cost-effective method of delivering video services than our products, projected sales of our video products will suffer. even if these providers choose our video products, they may not be successful in marketing video services to their customers, in which case additional sales of our products would likely be reduced. selling successfully to the telephone company market will be a significant challenge for us. several of our largest competitors, such as cisco systems and motorola corporation, have mature customer relationships with many of the largest telephone companies, while we have limited recent experience with sales and marketing efforts designed to reach these potential customers. in addition, telephone companies face specific network architecture and legacy technology issues that we have only limited expertise in addressing. if we fail to penetrate the telephone company market successfully, our growth in revenues and operating results would be correspondingly limited.our customer base has become increasingly concentrated, and there are a limited number of potential customers for our products. the loss of any of our key customers would likely reduce our revenues significantly. historically, a large portion of our sales have been to a limited number of customers. sales to our five largest customers accounted for approximately 90% of our net revenues in the three months ended december 31, 2006, approximately 79% of our net revenues in the year ended december31, 2006, approximately 69% of our net revenues in the year ended december31, 2005, and approximately 61% of our net revenues in the year ended december31, 2004. in 2006, comcast, cox, time warner cable and verizon each represented 10% or more of our net revenues. in 2005, adelphia, cox and time warner cable each represented 10% or more of our net revenues. in 2004, adelphia, comcast, cox and time warner cable each represented 10% or more of our net revenues. we anticipate that a large portion of our revenues will continue to depend on sales to a limited number of customers, and we do not have contracts or other agreements that guarantee continued sales to these or any other customers. in addition, as the consolidation of ownership of cable operators and telephone companies continues, we may lose existing customers and have access to a shrinking pool of potential customers. we expect to see continuing industry consolidation and customer concentration due to the significant capital costs of constructing video, voice and data networks and for other reasons. for example, adelphia, formerly the fifth largest cable company in the united states, which accounted for 5% of our net revenue in the year ended december31, 2006, was sold in 2006 to comcast and time warner cable, the two largest u.s. cable operators. further business combinations may occur in our customer base which will result in increased purchasing leverage by these customers over us. this may reduce the selling prices of our products and services and as a result may harm our business and financial results. many of our customers desire to have two sources for the products we sell to them. as a result, our future revenue opportunities could be limited, and our profitability could be adversely impacted. the loss of, or reduction in orders from, any of our key customers would significantly reduce our revenues and have a material adverse impact on our business, operating results and financial condition.the timing of a significant portion of our net revenues is dependent on complex systems integration. we derive a significant portion of our net revenues from sales that include the network design, installation and integration of equipment, including equipment acquired from third parties to be integrated with our products to the specifications of our customers. we base our revenue forecasts on the estimated timing to complete the network design, installation and integration of our customer projects and customer acceptance of those products. the systems of our customers are both diverse and complex, and our ability to configure, test and integrate our systems with other elements of our customers networks is dependent upon technologies provided to our 9 customers by third parties. as a result, the timing of our revenue related to the implementation of our product applications in these complex networks is difficult to predict and could result in lower than expected revenue in any particular quarter. similarly, our ability to deploy our equipment in a timely fashion can be subject to a number of other risks, including the availability of skilled engineering and technical personnel, the availability of equipment produced by third parties and our customers need to obtain regulatory approvals.if revenues forecasted for a particular period are not realized in such period due to the lengthy, complex and unpredictable sales cycles of our products, our operating results for that or subsequent periods will be harmed. the sales cycles of our products are typically lengthy, complex and unpredictable and usually involve: a significant technical evaluation period; a significant commitment of capital and other resources by service providers; substantial time required to engineer the deployment of new technologies or new video, voice and data services; substantial testing and acceptance of new technologies that affect key operations; and substantial test marketing of new services with subscribers. for these and other reasons, our sales cycles generally have been between nine and eighteen months, but can last longer. if orders forecasted for a specific customer for a particular quarter do not occur in that quarter, our operating results for that quarter could be substantially lower than anticipated. our quarterly and annual results may fluctuate significantly due to revenue recognition policies and the timing of the receipt of orders.we only recently became profitable, and we may not be able to sustain profitability in future periods. the three-month periods ended september30, 2006 and december31, 2006 have been the only fiscal quarters in which we have achieved profitability. we were profitable for our 2006 fiscal year; however, we reported losses for our 2005 and 2004 fiscal years. we are continuing to incur increased research and development, sales and marketing, and general and administrative expenses. as a result, we may not be able to sustain profitability in future fiscal quarters or achieve profitability on an annual basis in the future.our independent registered public accountants have identified and reported to us material weaknesses in our internal controls for the years ended december31, 2004 and 2005 that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies. in connection with the audits of our consolidated financial statements for each of the years ended december31, 2004 and 2005, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting under the standards established by the american institute of certified public accountants. our independent registered public accounting firm has indicated that the material weaknesses in our revenue recognition process and financial statement closing process resulted from having insufficient procedures in place and an insufficient number of qualified resources in our finance department with the required proficiency to apply our accounting policies in accordance with u.s. generally accepted accounting principles, or gaap. our independent registered public accounting firm was not, however, engaged to audit the effectiveness of our internal control over financial reporting. if such an evaluation had been performed or when we are required to perform such an evaluation, additional material weaknesses, significant deficiencies and other control deficiencies may have been or may be identified. ensuring that we have adequate internal financial and accounting controls and procedures in place to help produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently, as described further under we will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results. 10 because of these material weaknesses, there is heightened risk that a material misstatement of our annual or quarterly financial statements will not be prevented or detected. while we have completed our remediation efforts to address these material weaknesses, we cannot assure you that these remediation efforts have been entirely successful or that similar material weaknesses will not recur. once we become a public company, we will be required to comply with the requirements of section404 of the sarbanes-oxley act of 2002 as of december31, 2008 and subsequent fiscal years. in the event that we have not adequately remedied these material weaknesses, and if we fail to maintain proper and effective internal controls in future periods, it could adversely affect our operating results, financial condition and our ability to run our business effectively and could cause investors to lose confidence in our financial reporting.if we do not adequately manage and evolve our financial reporting and managerial systems and processes, our operating results and financial condition may be harmed. our ability to successfully implement our business plan and comply with regulations applicable to being a public reporting company requires an effective planning and management process. we expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future. any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, could harm our ability to accurately forecast sales demand, manage our supply chain and record and report financial and management information on a timely and accurate basis. in addition, the successful enhancement of our operational and financial systems, procedures and controls will result in higher general and administrative costs in future periods, and may adversely impact our operating results and financial condition. in connection with our implementation, in the third quarter of 2006, of more stringent controls related to contracts for providing customer support, we discovered that certain end users in china maintained that they were entitled to company-provided support, while our contracts with these customers did not provide for customer support. in response, the audit committee of our board of directors conducted an independent investigation of the matter, employing independent counsel and an independent accounting firm. the investigation, which was completed in december 2006, found numerous instances in which resellers of our product applications in china, with the understanding and approval of our china personnel, agreed to provide technical support, extended warranty terms and potentially other undefined terms without proper documentation and without communicating these arrangements to our legal and finance departments. as a result, we have deferred approximately $5.1 million in revenue as of december31, 2006 from customers in china, which will be recognized in future periods if we satisfy all of the elements of our revenue recognition criteria. our controls previously in place did not prevent these occurrences and we have therefore implemented a number of additional controls and remedial actions to ensure the appropriate accounting of future transactions and control over contracts with end users in china. in the event that we have not adequately implemented these additional controls and remedial actions, additional material weaknesses could be identified and could cause investors to lose confidence in our financial reporting.we may not accurately anticipate the timing of the market needs for our products and develop such products at the appropriate times, which could harm our operating results and financial condition. accurately forecasting and meeting our customers requirements is critical to the success of our business. forecasting to meet customers needs is particularly difficult in connection with newer products and products under development. our ability to meet customer demand depends on our ability to configure our product applications to the complex architecture that our customers have developed, the availability of components and other materials and the ability of our contract manufacturers to scale their production of our products. our ability to meet customer requirements depends on our ability to obtain sufficient volumes of these components and materials in a timely fashion. if we fail to meet customers supply expectations, our net revenues will be adversely affected, and we will likely lose business. in addition, our priorities for future product development are based on our expectations of how the market for video, voice and data services will continue to develop in the united states and in international markets. if the market for such services develops more rapidly than we 11 anticipate, then our product development efforts may be behind, which may result in our being unable to recoup our capital spent on product development as a result of a missed market opportunity. conversely, if the market develops more slowly than we anticipate, we may find that we have expended significant capital on product development prior to our being able to generate any revenues for those products. if we are unable to accurately time our product introductions to meet market demand, it could have a material adverse impact on our operating results and financial condition. in addition, if actual orders are materially lower than the indications we receive from our customers, our ability to manage inventory and expenses will also be harmed. if we enter into purchase commitments to acquire components and materials, or expend resources to manufacture products, and those products are not purchased by our customers when expected, our business and operating results could suffer.we need to develop and introduce new and enhanced products in a timely manner to remain competitive, and our product development efforts require substantial research and development expense. the markets in which we compete are characterized by continuing technological advancement, changes in customer requirements and evolving industry standards. to compete successfully, we must design, develop, manufacture and sell new or enhanced products that provide increasingly higher levels of performance and reliability and meet the cost expectations of our customers. our product development efforts require substantial research and development expense. research and development expense in the year ended december31, 2006 was $37.2million, in the year ended december31, 2005 was $30.7million and in the year ended december31, 2004 was $21.6million. there can be no assurance that we will achieve an acceptable return on our research and development efforts. we are currently developing a modular cable modem termination system, or m-cmts, that we believe will be important for our future revenue growth and operating results. if we fail to deliver our m-cmts product to market in a timely and cost-effective manner, or if our m-cmts product fails to operate with all the functionality our customers expect, our future operating results would be harmed. likewise, new technologies, standards and formats are being adopted by our customers. while we are in the process of developing products based on many of these new formats in order to remain competitive, we do not have such products at this time and cannot be certain when, if at all, we will have products in support of such new formats.our future growth depends on market acceptance of several emerging video, voice and data services, on the adoption of new network architectures and technologies and on several other industry trends. future demand for our products will depend significantly on the growing market acceptance of several emerging video, voice and data services, including high-speed data services; hdtv; addressable advertising; video delivered over telephone company networks; and voip. the effective delivery of these services will depend on service providers developing and building new network architectures to deliver them. if the introduction or adoption of these services or the deployment of these networks is not as widespread or as rapid as we or our customers expect, our revenue growth will be limited. furthermore, we expect the extent and nature of regulatory attitudes towards issues such as competition among service providers, access by third parties to networks of other service providers and new services such as voip to impact our customers purchasing decisions. if service providers do not pursue the opportunity to offer integrated video, voice and data services as aggressively as we expect, our revenue growth would be limited.the markets in which we operate are intensely competitive, and many of our competitors are larger, more established and better capitalized than we are. the markets for selling network-based hardware and software products to service providers are extremely competitive and have been characterized by rapid technological change. in the cmts market, we compete 12 principally with cisco systems, motorola and arris. in the video market, we compete broadly with system suppliers including harmonic, motorola, scientific atlanta (a division of cisco systems), seachange international, tandberg television (which recently announced that it will be acquired by arris), terayon communication systems and a number of smaller companies. we may not be able to compete successfully in the future, which may harm our business. many of our competitors are substantially larger and have greater financial, technical, marketing and other resources than us. given their capital resources, many of these large organizations are in a better position to withstand any significant reduction in capital spending by customers in these markets. they often have broader product lines and market focus and are not as susceptible to downturns in a particular market. in addition, many of our competitors have been in operation much longer than we have and therefore have more long-standing and established relationships with domestic and foreign service providers. if any of our competitors products or technologies were to become the industry standard, our business would also be seriously harmed. if our competitors are successful in bringing their products to market earlier, or if their products are more technologically capable than ours, then our sales could be materially adversely affected. recently, we have seen rapid consolidation among our competitors, such as ciscos acquisition of scientific atlanta and purchases of vod solutions by each of cisco, harmonic and motorola. in addition, some of our competitors have entered into strategic relationships with one another to offer a more comprehensive solution than would be available individually. we expect this trend to continue as companies attempt to strengthen or maintain their market positions in the evolving industry for video. many of the companies driving this consolidation trend have significantly greater financial, technical and other resources than we do, and are much better positioned than we are to offer complementary products and technologies. these combined companies may offer more compelling product offerings and be able to offer greater pricing flexibility, making it more difficult for us to compete while sustaining acceptable gross margins. finally, continued industry consolidation may impact customers perceptions of the viability of smaller companies, which may affect their willingness to purchase products from us. these competitive pressures could harm our business, operating results and financial condition.in the event that certain of our competitors integrate products performing functions similar to our products into their existing network infrastructure offerings, our existing and potential customers may decide against using our products in their networks, which would harm our business. other providers of network-based hardware and software products are offering or announcing functionality aimed at solving similar problems addressed by our products. for example, several vendors have recently announced their intention to develop a switched broadcast product application. the inclusion of, or the announcement of the intent to include, functionality perceived to be similar to our product offerings in our competitors products that have been accepted as necessary components of network architecture may have an adverse effect on our ability to market and sell our products. furthermore, even if the functionality offered by other network infrastructure providers is more limited than our products, a significant number of customers may elect to accept such limited functionality in lieu of adding components from a different vendor. many of our existing and potential customers have invested substantial personnel and financial resources to design and operate their networks and have mature relationships with other providers of network infrastructure products, which may make them reluctant to add new components to their networks, particularly from new vendors. in addition, our customers other vendors with a broader product offering may be able to offer pricing or other concessions that we are not able to match because we currently offer a more modest suite of products and have fewer resources. if our existing or potential customers are reluctant to add network infrastructure from new vendors or otherwise decide to work with their existing vendors, our business, operating results and financial condition will be adversely affected.we need to develop additional distribution channels to market and sell our products. the majority of our sales to date have been direct sales to large cable operators in north america. our video products have been traditionally sold to large cable operators with recent sales to telephone companies. we have 13 not focused on smaller service providers and have had only limited access to service providers in certain international markets, including asia and europe. although we intend to establish strategic relationships with leading distributors worldwide in an attempt to reach new customers, we may not succeed in establishing these relationships. even if we do establish these relationships, the distributors may not succeed in marketing our products to their customers. some of our competitors have established long-standing relationships with cable operators and telephone companies that may limit our and our distributors ability to sell our products to those customers. even if we were to sell our products to those customers, it would likely not be based on long-term commitments, and those customers would be able to terminate their relationships with us at any time without significant penalties.we depend on a limited number of third parties to manufacture, assemble and supply our products. we obtain many components and modules necessary for the manufacture or integration of our products from a sole supplier or a limited group of suppliers, with whom we do not generally maintain long-term agreements. our reliance on sole or limited suppliers involves several risks, including the inability to obtain an adequate supply of required components or modules and reduced control over pricing, quality and timely delivery of components. for example, we depend exclusively on broadcom for one of the chipsets in our cmts product. our ability to deliver our products on a timely basis to our customers would be materially adversely impacted if we needed to find alternative replacements for the chipsets, central processing units or power supplies that we use in our products. significant time and effort would be required to locate new vendors for these alternative components, if alternatives are even available to us. in addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantity requirements and delivery schedules. in addition, increased demand by third parties for the components we use in our products may lead to decreased availability and higher prices for those components, since we carry little inventory of our products and product components. as a result, we may not be able to secure sufficient components at reasonable prices or of acceptable quality to build products in a timely manner, which would | -0.116050 | 18.73 | 1406.82 | 218.586 | 139100000 | 176.510 | 371 | True | 2007 |
| 9 | 36.0 | 123.0 | NaN | 271.269114 | ENFIELD | 13.1000 | NaN | 52.93 | 9972.18 | False | NYSE | False | True | Manufacturing -- Machinery, Trucks, Planes, Off Furn, Paper, Com Printing | Rubber and Plastic Products | Manufacturing, Energy, and Utilities | 6378.0 | 123000000.0 | STR Holdings Inc | 0.372381 | NaN | Credit Suisse\nGoldman Sachs & Co | 2154.47 | 22.989 | 9.0 | 0 | 7 | 3.0 | 10.0 | 0.571429 | True | 6378.0 | 0 | 4.286286 | 4.5005 | 9.001 | 30.004 | risk factors an investment in our common stock involves a high degree of risk. you should carefully consider the following risks, as well as the other information contained in this prospectus, before making an investment in our company. if any of the following risks actually occurs, our business, results of operations or financial condition may be adversely affected. in such an event, the trading price of our common stock could decline and you could lose part or all of your investment. risks related to our solar businessif demand for solar energy in general and solar modules in particular does not continue to develop or takes longer to develop than we anticipate, sales in our solar business may not grow or may decline, which would negatively affect our financial condition and results of operations. we expect that a significant amount of the growth in our overall business will come from the sale of encapsulants by our solar business. because our encapsulants are used in the production of solar modules, our financial condition and results of operations and future growth are tied to a significant extent to the overall demand for solar energy and solar modules. the solar energy market is at a relatively early stage of development and the extent to which solar modules will be widely adopted is uncertain. many factors may affect the viability and widespread adoption of solar energy technology and demand for solar modules, and in turn, our encapsulants, including: cost-effectiveness of solar modules compared to conventional and non-solar renewable energy sources and products; performance and reliability of solar modules compared to conventional and non-solar renewable energy sources and products; availability and amount of government subsidies and incentives to support the development and deployment of solar energy technology; rate of adoption of solar energy and other renewable energy generation technologies, such as wind, geothermal and biomass; seasonal fluctuations related to economic incentives and weather patterns; fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as increases or decreases in the prices of fossil fuels and corn or other biomass materials; the current worldwide economic recession as well as volatility and disruption in the credit markets, which may continue to slow the growth of the solar industry, may continue to cause our customers to experience a reduction in demand for their products and related financial difficulties and may continue to adversely impact our solar business; fluctuations in capital expenditures by end users of solar modules, which tend to decrease when the overall economy slows down; the extent to which the electric power and broader energy industries are deregulated to permit broader adoption of solar electricity generation; and the cost and availability of polysilicon and other key raw materials for the production of solar modules. for example, in the first six months of 2009, we experienced a decline in our solar business mainly due to decreased global demand for solar energy as a result of legislative changes, such as the cap in feed-in tariffs in spain implemented in 2008, the ongoing global recession and the ongoing worldwide credit crisis. if demand for solar energy and solar modules fails to develop sufficiently, demand for our customers' products as well as demand for our encapsulants will decrease, and we may not be able to grow our business or solar net sales and our financial condition and results of operations will be harmed.a significant reduction or elimination of government subsidies and economic incentives or a change in government policies that promote the use of solar energy could have a material adverse effect on our business and prospects. demand for our encapsulants depends on the continued adoption of solar energy and the resultant demand for solar modules. demand for our products depends, in large part, on government incentives aimed to promote greater use of solar energy. in many countries in which solar modules are sold, solar energy would not be commercially viable without government incentives. this is because the cost of generating electricity from solar energy currently exceeds, and we believe will continue to exceed for the foreseeable future, the costs of generating electricity from conventional energy sources. the scope of government incentives for solar energy depends, to a large extent, on political and policy developments relating to environmental and energy concerns in a given country that are subject to change, which could lead to a significant reduction in, or a discontinuation of, the support for renewable energy in such country. federal, state and local governmental bodies in many of the target markets for our solar business, including germany, italy, spain, the united states, france, japan and south korea, have provided subsidies and economic incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar energy products to promote the use of solar energy and to reduce dependency on other forms of energy. these government economic incentives could be reduced or eliminated earlier than anticipated. for example, in june2008, the german parliament adopted new legislation that will decrease the feed-in tariff for solar energy between 8% and 10% in 2010 and 9% annually thereafter. also, in september 2008, the spanish parliament adopted new legislation that will decrease the feed-in tariff for solar energy by approximately 27% and capped its subsidized pv installations at 500 mw for 2009. moreover, electric utility companies, or generators of electricity from fossil fuels or other renewable energy sources, could also lobby for changes in the relevant legislation in their markets to protect their revenue streams. reduced growth in or the reduction, elimination or expiration of government subsidies and economic incentives for solar energy, especially those in our target markets, could cause our solar net sales to decline and harm our business.our solar business is dependent on a limited number of customers, which may cause significant fluctuations or result in declines in our solar net sales. the solar module industry is relatively concentrated. as a result, we sell substantially all of our encapsulants to a limited number of solar module manufacturers. we expect that our results of operations will, for the foreseeable future, continue to depend on the sale of encapsulants to a relatively small number of customers. sales to first solar accounted for 31.0% and 19.1% of our solar net sales in the six months ended june30, 2009 and the year ended december31, 2008, respectively. in addition, the top five customers in our solar segment accounted for approximately 63.6% and 47.0% of our solar net sales in the six months ended june30, 2009 and the year ended december31, 2008, respectively. furthermore, participants in the solar industry, including our customers, are experiencing pressure to reduce their costs. because we are part of the overall supply chain to our customers, any cost pressures experienced by them may affect our business and results of operations. our customers may not continue to generate significant solar net sales for us. conversely, we may be unable to meet the production demands of our customers or maintain these customer relationships. also, new entrants into the solar module manufacturing industry, primarily from china, could negatively impact the demand for, and pricing of, our customers' products, which could reduce the demand for our encapsulants. we believe our european customers have lost market share to low-cost module manufacturers, primarily from china, that continue to penetrate the european solar market and whom we do not sell encapsulants to. we have lost market share in the european market due to emerging low-cost solar module manufacturers, primarily from china, and if we are not able to supply encapsulants to these new entrants in the future, we could lose further market share and also face competition from new encapsulant manufacturers. in addition, a significant portion of our outstanding accounts receivable is derived from sales to a limited number of customers. the accounts receivable from our top five solar customers with the largest receivable balances represented 44.8% and 34.6% of our accounts receivable balance as of june30, 2009 and december31, 2008, respectively. moreover, many solar companies are facing and may continue to face significant liquidity and capital expenditure requirements, and as a result, our customers may have trouble making payments owed to us, which could affect our business, financial condition and results of operations. any one of the following events may cause material fluctuations or declines in our solar net sales and have a material adverse effect on our business, financial condition and results of operations: reduction, postponement or cancellation of orders from one or more of our significant customers; reduction in the price one or more significant solar customers are willing to pay for our encapsulants; selection by one or more solar customers of products competitive with our encapsulants; loss of one or more significant solar customers and failure to obtain additional or replacement customers; and failure of any of our significant solar customers to make timely payment for products.our solar business's growth is dependent upon the growth of our key solar customers and our ability to keep pace with our customers' growth. in addition to relying on a small number of customers, we believe we were the primary supplier to each of our top 10 solar customers in the first six months of 2009. the future growth and success in our solar business depends on the ability of such customers to grow their businesses and our ability to meet any such growth, principally through the addition of manufacturing capacity. if our solar customers do not increase production of solar modules, there will be no corresponding increase in encapsulant orders. alternatively, in the event such customers grow their businesses, we may not be able to meet their increased demands, which would require such customers to find alternative sources for encapsulants. in addition, it is possible that customers for which we are the exclusive supplier of encapsulants will seek to qualify and establish a secondary supplier of encapsulants, which would reduce our share with such customers and could increase that customer's pricing leverage. if our solar customers do not grow their businesses or they find alternative sources for encapsulants to meet their demands, it could limit our ability to grow our business and increase our solar net sales.technological changes in the solar energy industry or our failure to develop and introduce or integrate new technologies could render our encapsulants uncompetitive or obsolete, which would adversely affect our business. the solar energy market is rapidly evolving and competitive and is characterized by continually changing technology requiring continuous improvements in solar modules to increase efficiency and power output and improve aesthetics. this requires us and our customers to continuously invest significant financial resources to develop new solar module technology and enhance existing solar modules to keep pace with evolving industry standards and changing customer requirements and to compete effectively in the future. our failure to further refine our encapsulant technology and develop and introduce new or enhanced encapsulants or other products, or our competitors' development of products and technologies that perform better or are more cost effective than our products, could cause our encapsulants to become uncompetitive or obsolete, which would adversely affect our business, financial condition and results of operations. product development activities are inherently uncertain, and we could encounter difficulties in commercializing new technologies. as a result, our product development expenditures in our solar business may not produce corresponding benefits. moreover, we produce a component utilized in the manufacturing of solar modules. new solar technologies may emerge or existing technologies may gain market share that do not require encapsulants as we produce them, or at all. such changes could result in decreased demand for our encapsulants or render them obsolete, which would adversely affect our business, financial condition and results of operations.we rely upon trade secrets and contractual restrictions, and not patents, to protect our proprietary rights. failure to protect our intellectual property rights may undermine our competitive position and protecting our rights or defending against third-party allegations of infringement may be costly. protection of proprietary processes, methods, documentation and other technology is critical to our business. failure to protect, monitor and control the use of our existing intellectual property rights could cause us to lose our competitive advantage and incur significant expenses. we rely on trade secrets, trademarks, copyrights and contractual restrictions to protect our intellectual property rights and currently do not hold any patents related to our solar business. however, the measures we take to protect our trade secrets and other intellectual property rights may be insufficient. while we enter into confidentiality agreements with our solar employees and third parties to protect our intellectual property rights, such confidentiality provisions related to our trade secrets could be breached and may not provide meaningful protection for our trade secrets. also, others may independently develop technologies or products that are similar or identical to ours. in such case, our trade secrets would not prevent third parties from competing with us. third parties or employees may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could harm our business and operating results. policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available. we are currently in litigation with a former employee, jamesp. galica, in our solar business and his current employer, jps elastomerics corp., for the misappropriation and theft of our trade secrets. in august 2008, the jury determined that the technology for our polymeric sheeting product line is a trade secret. the jury also determined that our former employee and his current employer had not misappropriated our trade secrets. we have not decided if we will appeal the jury's determination. the jury also found that our former employee had breached his confidentiality agreement with us. subsequently, the judge determined that jps and galica had violated the massachusetts unfair and deceptive trade practices act, finding that the technology for our polymeric sheeting product is a trade secret and that jps and galica had misappropriated our trade secrets. the judge awarded us compensatory and punitive damages, attorneys' fees and costs and issued a temporary injunction preventing jps from manufacturing, marketing or selling the competing products, which are substantially similar to some of our encapsulants. the final amount of damages to be awarded to us, as well as the scope of a permanent injunction, is still pending before the court and will be determined by the presiding judge. jps has filed a motion for reconsideration of the court's decision that jps and galica had violated the massachusetts unfair and deceptive trade practices act. final judgment will not be entered until these pending matters are resolved. the court has ordered each party to brief the remaining issues. upon entry of final judgment, jps will have the right to appeal the judge's ruling, and we will have the right to appeal the jury's verdict. if jps or galica is successful on the appeals from both the jury's verdict and the judge's rulings, the result may be a new trial or a final determination that jps may compete with us by continuing to sell a product that is substantially similar to some of our encapsulants. jps may also be allowed to compete with us on some encapsulant products based on the court's ruling on the scope and duration of the permanent injunction. even if we are ultimately successful, this lawsuit and any future lawsuits to protect our intellectual property rights or defend against third-party infringement claims may be costly and may divert management attention and other resources away from our business. for further information regarding the litigation with our former employee, see "businesslegal proceedingsgalica/jps."we face competition in our solar business from other companies producing encapsulants for solar modules. the market for encapsulants is highly competitive and continually evolving. we compete with a number of encapsulant manufacturers, some of which are large, global companies with substantial financial, manufacturing and logistics resources and strong customer relationships. if we fail to attract and retain customers for our current and future products, we will be unable to increase our revenues and market share. our primary encapsulant competitors include bridgestone corporation, etimex primary packaging gmbh and mitsui chemicals, inc. we also expect to compete with new entrants to the encapsulant market, including those that may offer more advanced technological solutions or that have greater financial resources than we do. further, as the china solar market matures, we expect other encapsulant providers from china and the greater asian markets will compete with us. our competitors may develop and produce or may be currently producing encapsulants that offer advantages over our products. a widespread adoption of any of these technologies could result in a rapid decline in our position in the encapsulant market and our revenues and adversely affect our margins.our failure to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet our customers' requirements could harm our business and damage our customer relationships in the event demand for encapsulants increases. conversely, expanding our production in times of overcapacity could have an adverse impact on our results of operations. prior to the fourth quarter of 2008, our manufacturing facilities generally operated at full production capacity, which constrained our ability to meet increased demand from our customers. the future success of our solar business depends, in part, on our ability to increase production capacity to satisfy any increased demand from our customers. we may be unable to expand our solar business, satisfy customer requirements, maintain our competitive position and improve profitability if we are unable to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet any increased demand for our solar products. for example, if there are delays in our new malaysian facility achieving target yields and output, we will not meet our target for adding capacity, which would limit our ability to increase encapsulant sales and result in lower than expected solar net sales and higher than expected costs and expenses. moreover, we may experience delays in receiving equipment and be unable to meet any increases in customer demand. failure to satisfy customer demand may result in a loss of market share to competitors and may damage our relationships with key customers. in addition, due to the lead time required to produce the equipment used in our encapsulant manufacturing process, it can take up to a year to obtain new machines after they are ordered. accordingly, we are required to order production equipment well in advance of expanding our facilities or opening new facilities and in advance of accepting additional customer orders. if such facilities are not expanded or completed on a timely basis or if anticipated customer orders do not materialize, we may not be able to generate sufficient solar net sales to offset the costs of new production equipment, which could have an adverse impact on our results of operations. furthermore, we rely on longer-term forecasts from our solar customers to plan our capital expenditures. if these forecasts prove to be inaccurate, either we may have spent too much on capacity growth, which could require us to consolidate facilities, in which case our financial results would be adversely affected, or we may have spent too little on capital expenditures, in which case we may be unable to satisfy customer demand, which could adversely affect our business. furthermore, our ability to establish and operate new manufacturing facilities and expand production capacity is subject to significant risks and uncertainties, including: restrictions in the agreements governing our indebtedness that restrict the amount of capital that can be spent on manufacturing facilities; inability to raise additional funds or generate sufficient cash flow from operations to purchase raw material inventory and equipment or to build additional manufacturing facilities; delays and cost overruns as a result of a number of factors, many of which are beyond our control, such as increases in raw material prices and long lead times or delays with equipment vendors; delays or denials of required approvals by relevant government authorities; diversion of significant management attention and other resources; inability to hire qualified personnel; and failure to execute our expansion plan effectively. if we are unable to establish or successfully operate additional manufacturing facilities or to increase production capacity at our existing facilities, as a result of the risks described above or otherwise, we may not be able to expand our business as planned and our solar net sales may be lower than expected. alternatively, if we build additional manufacturing facilities or increase production capacity at our existing facilities, we may not be able to generate sufficient customer demand for our encapsulants to support the increased production levels, which would adversely affect our business and operating margins.our solar business is exposed to risks related to running our facilities at full production capacity from time to time that could result in decreased solar net sales and affect our ability to grow our business in future periods. prior to the fourth quarter of 2008, our manufacturing facilities generally operated at full production capacity. if any of our current or future production lines or equipment were to experience any problems or downtime, such as in 2005 when one of our plants was without electricity for five days following a hurricane, we may not be able to shift production to new lines and may not be able to meet our production targets, which would result in decreased solar net sales and adversely affect our customer relationships. as a result, our per-unit manufacturing costs would increase, we would be unable to increase sales as planned and our earnings would likely be negatively impacted. in addition, when our encapsulant production lines are running at full capacity, they are generally used solely to meet current customers' orders. as such, there is very limited production line availability to test new technologies or further refine existing technologies that are important for keeping pace with evolving industry standards and changing customer requirements and competing effectively in the future. limitations in our ability to test new products or enhancements to our existing products could cause our encapsulants to become uncompetitive or obsolete, which would adversely affect our business.we may be subject to claims that we have infringed, misappropriated or otherwise violated the patent or other intellectual property rights of a third party. the outcome of any such claims is uncertain and any unfavorable result could adversely affect our business, financial condition and results of operations. we may be subject to claims by third parties that we have infringed, misappropriated or otherwise violated their intellectual property rights. these claims may be costly to defend, and we ultimately may not be successful. an adverse determination in any such litigation could subject us to significant liability to third parties (potentially including treble damages), require us to seek licenses from third parties (which may not be available on reasonable terms, or at all), make substantial one-time or ongoing royalty payments, redesign our products or subject us to temporary or permanent injunctions prohibiting the manufacture and sale of our products, the use of our technologies or the conduct of our business. protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation. in addition, we may have no insurance coverage in connection with such litigation and may have to bear all costs arising from any such litigation to the extent we are unable to recover them from other parties. any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.we generally operate on a purchase order basis with our solar customers, and their ability to cancel, reduce, or postpone orders could reduce our solar net sales and increase our costs. sales to our solar customers are typically made through non-exclusive, short-term purchase order arrangements that specify prices and delivery parameters. the timing of placing these orders and the amounts of these orders are at our customers' discretion. customers may cancel, reduce or postpone purchase orders with us prior to production on relatively short notice. if customers cancel, reduce or postpone existing orders or fail to make anticipated orders, it could result in the delay or loss of anticipated sales, which could lead to excess inventory and unabsorbed overhead costs. because our encapsulants have a limited shelf life from the time they are produced until they are incorporated into a solar module, we may be required to sell any excess inventory at a reduced price, or we may not be able to sell it at all and incur an inventory write-off, which could reduce our solar net sales and increase our costs. in the first six months of 2009, we experienced postponements and cancellations in orders and, as a result, incurred approximately $1.0million of inventory write-offs.we may be unable to manage the expansion of our solar operations effectively. we expect to expand our existing facilities and add new facilities to meet future demand for encapsulants. we recently completed expansions in our facilities in connecticut and spain. the production line qualification on our malaysian facility has been completed, and we began shipping production quantities of encapsulants from that facility in the third quarter of2009. to manage the potential growth of our operations, we will be required to improve operational and financial systems, procedures and controls, increase manufacturing capacity and output and expand, train and manage our growing employee base. furthermore, management will be required to maintain and expand our relationships with our customers, suppliers and other third parties. our solar business's current and planned operations, personnel, systems, internal procedures and controls may not be adequate to support our future growth. if we are unable to manage the growth of our solar business effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.our dependence on a limited number of third-party suppliers for raw materials for our encapsulants and other significant materials used in our process could prevent us from timely delivering encapsulants to our customers in the required quantities, which could result in order cancellations and decreased revenues. we purchase resin and paper liner, the two main components used in our manufacturing process, from a limited number of third-party suppliers. if we fail to develop or maintain our relationships with these suppliers or our other suppliers, or if the suppliers' facilities are affected by events beyond our control, we may be unable to manufacture our encapsulants or our encapsulants may be available only for customers in lesser quantities, at a higher cost or after a long delay. we may be unable to pass along any price increases relating to materials costs to our customers, in which case our margins could be reduced. in addition, we do not maintain long-term supply contracts with our suppliers. our inventory of raw materials for our encapsulants, including back-up supplies of resin, may not be sufficient in the event of a supply disruption. in 2005, we encountered a supply disruption when one of our resin suppliers had its facilities damaged by a hurricane, and another supplier had a reactor fire at the same time. this forced us to use our back-up supplies of resin. the failure of a supplier to supply materials and components, or a supplier's failure to supply materials that meet our quality, quantity and cost requirements in a timely manner, could impair our ability to manufacture our products to specifications, particularly if we are unable to obtain these materials and components from alternative sources on a timely basis or on commercially reasonable terms. if we are forced to change suppliers, our customers may require us to undertake testing to ensure that our encapsulants meet the customer's specifications.our solar gross margins and profitability may be adversely affected by rising commodity costs. we are dependent on certain raw and other materials, particularly resin and paper, for the manufacture of our encapsulants. in addition, the cost of equipment used to manufacture our encapsulants is affected by steel prices. the prices for resin, paper and steel have been volatile over the past few years and could increase. if the prices for the commodities and equipment we use in our solar business increase, our gross margins and results of operations may be adversely affected.as a supplier to solar module manufacturers, disruptions in any other component of the supply chain to solar module manufacturers may adversely affect our customers and consequently limit the growth of our business and revenue. we supply a component to solar module manufacturers. as such, if there are disruptions in any other area of the supply chain for solar module manufacturers, it could affect the overall demand for our encapsulants. for example, the increased demand for polysilicon due to the rapid growth of the solar energy and computer industries and the significant lead time required for building additional capacity for polysilicon production led to an industry-wide shortage of polysilicon from 2005 through 2008, which is an essential raw material in the production of most of the solar modules produced by many of our customers. this and other disruptions to the supply chain may force our customers to reduce production, which in turn would decrease customer demand for our encapsulants and could adversely affect our solar net sales. in addition, reduced orders for our encapsulants could result in underutilization of our production facilities and cause an increase of our marginal production cost. in 2009, we experienced postponements and cancellations in orders and, as a result, incurred approximately $1.0million of inventory write-offs.the sales cycle for our encapsulants can be lengthy, which could result in uncertainty and delays in generating solar net sales. the integration and testing of our encapsulants with prospective customers' solar modules or enhancements to existing customers' solar modules requires a substantial amount of time and resources. a solar customer may need up to one year to test, evaluate and adopt our encapsulants and qualify a new solar module, before ordering our encapsulants. our solar customers then need additional time to begin volume production of solar modules that incorporate our encapsulants. as a result, the complete sales cycle for our solar business can be lengthy. we may experience a significant delay between the time we increase our expenditures for product development, sales and marketin | 0.035594 | 29.75 | 1079.60 | 645.860 | 123000000 | 264.945 | 1528 | False | 2009 |
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| age | amountOnProspectus | blueSky | bookValue | city | closeDay1 | commonEquity | commonEquity.1 | dj2weeksBefore | egc | exchange | highTech | html | industryFF12 | industryFF48 | industryFF5 | investmentReceived | ipoSize | issuer | leverage | managementFee | manager | nasdaq2weeksBefore | netIncome | nExecutives | nPatents | nUnderwriters | nVCs | offerPrice | patRatio | pe | priorFinancing | prominence | reputationAvg | reputationLeadAvg | reputationLeadMax | reputationSum | rf | roa | sharesOfferedPerc | sp2weeksBefore | totalAssets | totalProceeds | totalRevenue | Unnamed_0 | vc | year | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3320 | 4.0 | 160.0 | 2000.0 | NaN | HACKENSACK | 16.0000 | NaN | 99.95 | 11119.86 | False | NASDQ | True | False | Telephone and Television Transmission | Communication | Business Equipment, Telephone and Television Transmission | 77698.0 | 160000000.0 | GoAmerica Inc | NaN | 2250000.0 | Bear Stearns & Co Inc | 4940.61 | NaN | 12.0 | 0 | 25 | 7.0 | 16.00 | 0.461538 | False | 77698.0 | 0 | 5.920960 | 8.00100 | 8.001 | 148.024 | RISK FACTORS Investing in our common stock involves a high degree of risk. You should carefully consider the following risks together with the other information contained in this prospectus before deciding to buy our common stock. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results could be significantly and adversely affected. If that happens, the price of our common stock could decline, and you could lose all or part of your investment. Risks Particular To GoAmerica We have historically incurred losses and these losses will increase in the foreseeable futureWe have never earned a profit. We had net losses of $1.0 million, $2.6 million and $11.5 million for the years ended December 31, 1997, 1998 and 1999, respectively. Since our inception, we have invested significant capital to build our wireless network operations and customer support centers as well as our customized billing system. Recently, we have invested additional capital in the development of our software application Go.Web. We plan to acquire and implement new operational and financial systems, continue to invest in our network operations and customer support centers, and expand our sales and marketing efforts. We also provide and expect to continue to provide mobile devices made by third parties to our customers at prices below our costs for such devices. In addition, our costs of subscriber revenue, consisting principally of our purchase of wireless airtime from network carriers, have historically exceeded our subscriber revenue and we expect such negative margins to continue until at least March 2000. Further, we have experienced and expect to continue to experience negative overall gross margins, which consist of margins on our subscriber revenues, equipment sales and other revenue. As a result, we have incurred operating losses since our inception and expect to continue to incur increasing operating losses for at least the next several quarters. Therefore, we will need to generate significant revenue to become profitable and sustain profitability on a quarterly or annual basisWe may not achieve or sustain our revenue or profit goals, and our ability to do so depends on the factors specified elsewhere in "Risk Factors" as well as on a number of factors outside of our control, including the extent to which: . our competitors announce and develop, or lower the prices of, competing services; . wireless network carriers, data providers and manufacturers of mobile devices dedicate resources to selling our services; and . prices for our services decrease as a result of reduced demand or competitive pressuresAs a result, we may not be able to increase revenue or achieve profitability on a quarterly or annual basis. We have only a limited operating history, which makes it difficult to evaluate an investment in our common stock We have only a limited operating history on which you can evaluate our business, financial condition and operating results. We face a number of risks encountered by early stage technology companies that participate in new technology markets, including our ability to: . manage our dependence on wireless data services which have only limited market acceptance to date; . expand our marketing, sales, engineering and support organizations, as well as our distribution channels; . negotiate and maintain favorable usage rates with telecommunications carriers; . retain and expand our subscriber base at profitable rates; . recoup our expenses associated with the wireless devices we resell to subscribers; 6 . manage expanding operations, including our ability to expand our systems if our subscriber base grows substantially; . attract and retain management and technical personnel; and . anticipate and respond to market competition and changes in technologies such as wireless data protocols and wireless devicesWe may not be successful in addressing or mitigating these risks and uncertainties, and if we are not successful our business could be significantly and adversely affected. To generate increased revenue we will have to increase substantially the number of our subscribers, which may be difficult to accomplish We will have to increase substantially the number of our subscribers in order to achieve our business plan. In addition to increasing our subscriber base, we will have to limit our churn, or the number of subscribers who deactivate our service. Adding new subscribers will depend to a large extent on the success of our direct and indirect marketing campaigns, and there can be no assurance that they will be successful. Limiting our churn rate will require that we provide our subscribers with a favorable experience in using our wireless service. Our subscribers' experience may be unsatisfactory to the extent that our service malfunctions or our customer care efforts, including our Web site and 800 number customer service efforts, do not meet or exceed subscriber expectations. In addition, factors beyond our control, such as technological limitations of certain of the current generation of wireless devices, which may cause our subscribers' experience with our service to not meet their expectations, could increase our churn rate and adversely affect our revenues. Because a significant minority of our subscribers have low or no usage rates for our services, our churn rates could increase in the future. We need to improve our systems to monitor our wireless airtime costs more effectivelyWe seek to reduce our wireless airtime costs by periodically matching our subscribers airtime usage needs to the most appropriate, lowest cost wireless carrier plans. It is possible for a small number of subscribers, if we do not assign them to the proper airtime pricing plan, to significantly increase our costs. The current systems that we use to monitor the airtime charges that we incur from our wireless carriers do not permit us to timely and effectively respond to changes in volume and geographic location of subscriber usage, which directly impact our costs of subscriber revenue. We currently use a manual system to track such costs and monitor wireless plan usage. We cannot assure you that we will be able to acquire or develop automated control systems or, if implemented, that our systems will be able to monitor all subscriber usage or improve our gross margins. We have experienced and may continue to experience negative gross margins on our subscriber revenueWe intend to pass through to our subscribers all the airtime charges that we incur from our wireless carriers; however, we have not always been and will not always be able to pass through such charges because the pricing plans offered to us by our wireless carriers and to which we assign our subscribers may not allow us to always cover our subscriber costs. For example, many of our subscribers have contracted for our Go.Unlimited Plan, which provides for unlimited nationwide wireless Internet service for a fixed monthly fee. If we assign those subscribers to a carrier plan that charges us an increasing fee as subscriber usage increases, then as subscriber usage and our related airtime costs increase, our margins on subscriber revenues would decrease and may become negative. Our airtime costs also increase substantially when subscribers use our services outside of their pre-determined geographic area, which results in roaming charges to us by the carriers that we do not pass on to our subscribers. We do not have and may not be able to develop the automated systems necessary to monitor our subscribers' usage and roaming patterns and quickly switch our subscribers to a more appropriate, lower cost airtime plan. In addition, while we continually seek to negotiate better pricing of wireless airtime plans with our carriers, we cannot assure you that we will be successful in that regard. 7 We subsidize the mobile devices that we resell which results in negative gross margins on our equipment revenueIn order to facilitate the sale of our wireless Internet services, the sales prices of the mobile devices manufactured by third parties that we sell to our subscribers are generally below our costs for such devices. Additionally, we have also provided many of our resellers and marketing partners with complimentary mobile devices and GoAmerica service during a trial period in order to facilitate additional sales of our services. As a result, we have experienced, and expect to continue to experience, negative gross margins on the mobile devices that we resell. We have limited resources and we may be unable to support effectively our anticipated growth in operationsWe have begun aggressively expanding our operations in anticipation of an increase in the number of our subscribers. The number of our employees increased from 23 on December 31, 1998 to 49 on December 31, 1999. We intend to use a portion of the net proceeds of this offering to hire a significant number of additional employees. We also intend to use a portion of the net proceeds from this offering to acquire a state-of-the-art accounting and business process software package to replace our current manual systems which must be updated. Additionally, we must continue to develop and expand our systems and operations as the number of subscribers and the amount of information they wish to receive, as well as the number of services we offer, increases. This development and expansion has placed, and we expect it to continue to place, significant strain on our managerial, operational and financial resources. We may be unable to develop and expand our systems and operations for one or more of the following reasons: . we may not be able to locate or hire at reasonable compensation rates qualified engineers and other employees necessary to expand our capacity on a timely basis; . we may not be able to obtain the hardware necessary to expand the subscriber capacity of our systems on a timely basis; . we may not be able to expand our customer service, billing and other related support systems; and . we may not be able to obtain sufficient additional capacity from wireless carriers on a timely basisIf we cannot manage our growth effectively, our business and operating results will suffer. Additionally, any failure on our part to develop and maintain our wireless data services if we experience rapid growth could significantly adversely affect our reputation and brand name which could reduce demand for our services and adversely affect our business, financial condition and operating results. Our business prospects depend in part on our ability to maintain and improve our services as well as to develop new servicesWe believe that our business prospects depend in part on our ability to maintain and improve our current services and to develop new services on a timely basis. Our services will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of customer requirements. As a result of the complexities inherent in our service offerings, major new wireless data services and service enhancements require long development and testing periods. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance. If we do not respond effectively and on a timely basis to rapid technological change, our business could sufferThe wireless and data communications industries are characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service 8 introductions. Our services are integrated with wireless handheld devices and the computer systems of our corporate customers. Our services must also be compatible with the data networks of wireless carriers. We must respond to technological changes affecting both our customers and suppliers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our success will depend, in part, on our ability to accomplish all the following in a timely and cost-effective manner: . effectively use and integrate new technologies; . continue to develop our technical expertise; . enhance our wireless data, engineering and system design services; . develop applications for new wireless networks and services; . develop services that meet changing customer needs; . advertise and market our services; and . influence and respond to emerging industry standards and other changes. We depend upon wireless carriers' networks. If we do not have continued access to sufficient capacity on reliable networks, our business will sufferOur success partly depends on our ability to buy sufficient capacity on the networks of wireless carriers such as AT&T Wireless Services, American Mobile, Bell Atlantic Mobile and BellSouth Mobile Data and on the reliability and security of their systems. We depend on these companies to provide uninterrupted and "bug free" service and would be adversely affected if they failed to provide the required capacity or needed level of service. In addition, although we have some forward price protection in our existing agreements with certain carriers, we could be adversely affected if wireless carriers were to increase the prices of their services. Our existing agreements with the wireless carriers generally have one-to-three year terms. Some of these wireless carriers are, or could become, our competitors. We depend on third parties for sales of our services which could result in variable and unpredictable revenuesWe rely substantially on the efforts of others to sell many of our wireless data communications services. While we monitor the activities of our resellers, we cannot control how those who sell and market our service perform and we cannot be certain that their performance will be satisfactory. If the number of customers we obtain through these efforts is substantially lower than we expect for any reason, this would have an adverse effect on our business, operating results and financial condition. Our goal of building the GoAmerica brand is likely to be difficult and expensive and our inability to do so could adversely affect our businessWe believe that a quality brand identity will be essential if we are to increase our number of subscribers and our revenues. We intend to use a significant portion of the proceeds of the offering to increase substantially our marketing budget as part of our efforts to build the GoAmerica brand. Our sales and marketing expenses were approximately $909,000 and $3.3 million for the years ended December 31, 1998 and 1999, respectively. In 2000, we expect our sales and marketing expenses to substantially exceed our 2000 revenues. If our marketing efforts cost more than anticipated, if we cannot increase our brand awareness or if the GoAmerica brand is not well received by our existing and potential subscribers, our losses will increase and our business will be adversely affected. 9 We depend on our key management and on recruiting and retaining key personnel. The loss of our key employees could adversely affect our businessWe are particularly dependent on Aaron Dobrinsky and Joseph Korb, our chairman, chief executive officer and president, and our executive vice president, respectively, for most of our strategic, managerial and marketing initiatives. The unexpected loss of such officers would likely have an adverse effect on our business. In addition, because of the technical nature of our services and the dynamic market in which we compete, our performance depends on attracting and retaining other key employees. Competition for qualified personnel in the wireless data, communications and software industries is intense and finding and retaining such qualified personnel with experience in such industries is even more difficult. We believe there are only a limited number of individuals with the requisite skills to serve in many of our key positions, and it is becoming increasingly difficult to hire and retain these persons. Competitors and others may attempt to recruit our employees. A major part of our compensation to our key employees is in the form of stock option grants. A prolonged depression in our stock price could make it difficult for us to retain our employees and recruit additional qualified personnel. We currently maintain and are the beneficiary of key person life insurance policies on the lives of Aaron Dobrinsky and Joseph Korb. We do not maintain insurance policies for any of our other employees. Wireless data systems failures could harm our business by injuring our reputation or lead to claims of liability for delayed, improper or unsecured transmission of dataA significant barrier to the growth of ecommerce and wireless data services has been the need for secure and reliable transmission of confidential information. Our existing wireless data services are dependent on real-time, continuous feeds from various sources. The ability of our subscribers to access data in real-time requires timely and uninterrupted connections with our wireless network carriers. Any significant disruption from our backup landline feeds could result in delays in our subscribers' ability to receive such information. In addition, our systems could be disrupted by unauthorized access, computer viruses and other accidental or intentional actions. We may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. If a third party were able to misappropriate our subscribers' personal or proprietary information or credit card information, we could be subject to claims, litigation or other potential liabilities that could adversely impact our business. There can be no assurance that our systems will operate appropriately if we experience a hardware or software failure. A failure in our systems could cause delays in transmitting data, and as a result we may lose customers or face litigation that could adversely affect our business. An interruption in the supply of products and services that we obtain from third parties could cause a decline in sales of our servicesIn designing, developing and supporting our wireless data services, we rely on wireless carriers, mobile device manufacturers, content providers and software providers. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services, unless and until we are able to replace the functionality provided by these products and services. We also depend on third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost- effective basis and respond to emerging industry standards and other technological changes. We may face increased competition which may negatively impact our prices for our services or cause us to lose business opportunitiesThe market for our services is expected to become increasingly competitive. The widespread adoption of industry standards in the wireless data communications market may make it easier for new market entrants and existing competitors to introduce services that compete against ours. We developed our solutions using standard industry development tools. Many of our agreements with wireless carriers, wireless handheld device manufacturers and data providers are non-exclusive. Our competitors may use the same products and services 10 in competition with us. With time and capital, it would be possible for competitors to replicate our services and offer similar services at a lower price. We expect that we will compete primarily on the basis of the functionality, breadth, quality and price of our services. Our current and potential competitors include: . Emerging wireless Internet services providers, including OmniSky, Wireless Knowledge, a joint venture of Microsoft and Qualcomm, Incorporated, and Infospace.com which recently acquired Saraide.com and those, such as Aether Systems, Inc., focusing on specific industries such as on-line financial trading; . Wireless device manufacturers, such as 3Com, Motorola and Research in Motion; . Wireless network carriers, such as AT&T Wireless Services, Bell Atlantic Mobile, BellSouth Wireless Data, Sprint PCS and Nextel Communications, Inc.; and . Wireline internet service providers and portals, such as America Online and Yahoo!Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. In addition, we have established strategic relationships with many of our potential competitors. In the event such companies decide to compete directly with us, such relationships would likely be terminated, which might have an adverse effect on our business and reduce our market share or force us to lower prices to unprofitable levels. We may not have adequately protected our intellectual property rightsOur success substantially depends on our ability to sell services for which we may not have intellectual property rights. We currently do not have patents on any of our intellectual property. We have filed for a patent on certain aspects of our Go.Web technology. We cannot assure you we will be successful in protecting our intellectual property through patent law. In addition, although we have applied for U.S. federal trademark protection, we do not have any U.S. federal trademark registrations for the marks "GoAmerica", "Go.Web", "Law on the Go" or certain of our other marks and we may not be able to obtain such registrations due to conflicting marks or otherwise. We rely primarily on trade secret laws, patent law, copyright law, unfair competition law and confidentiality agreements to protect our intellectual property. To the extent that our technology is not adequately protected by intellectual property law, other companies could develop and market similar products or services which could adversely affect our business. We may be sued by third parties for infringement of their proprietary rights and we may incur defense costs and possibly royalty obligations or lose the right to use technology important to our businessThe telecommunications and software industries are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement or other violations of intellectual property rights. As the number of participants in our market increases, the possibility of an intellectual property claim against us could increase. Any intellectual property claims, with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from administering our business. A third party asserting infringement claims against us or our customers with respect to our current or future products may adversely affect us by, for example, causing us to enter into costly royalty arrangements or forcing us to incur settlement or litigation costs. Please refer to "Business-- Intellectual Property Rights" for information relating to claims we have received. We may be subject to liability for transmitting information, and our insurance coverage may be inadequate to protect us from this liabilityWe may be subject to claims relating to information transmitted over systems we develop or operate. These claims could take the form of lawsuits for defamation, negligence, copyright or trademark infringement or other actions based on the nature and content of the materials. Although we carry general liability insurance, 11 our insurance may not cover potential claims of this type or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed. We may acquire or make investments in companies or technologies that could cause loss of value to our stockholders and disruption of our businessWe intend to explore opportunities to acquire companies or technologies in the future. Entering into an acquisition entails many risks, any of which could adversely affect our business, including: . failure to integrate the acquired assets and/or companies with our current business; . the price we pay may exceed the value we eventually realize; . loss of share value to our existing stockholders as a result of issuing equity securities as part or all of the purchase price; . potential loss of key employees from either our current business or the acquired business; . entering into markets in which we have little or no prior experience; . diversion of management's attention from other business concerns; . assumption of unanticipated liabilities related to the acquired assets; and . the business or technologies we acquire or in which we invest may have limited operating histories and may be subject to many of the same risks we are. Our quarterly operating results are subject to significant fluctuations and, as a result, period-to-period comparisons of our results of operations are not necessarily meaningfulOur quarterly operating results may fluctuate significantly in the future as a result of a variety of factors. These factors include: . the demand for and market acceptance of our services; . downward price adjustments by our competitors on services they offer that are similar to ours; . changes in the mix of services sold by our competitors; . technical difficulties or network downtime affecting wireless communications generally; . the ability to meet any increased technological demands of our customers; and . economic conditions specific to our industryTherefore, our operating results for any particular quarter may differ materially from our expectations or those of security analysts and may not be indicative of future operating results. The failure to meet expectations may cause the price of our common stock to decline substantially. We may need additional funds which, if available, could result in an increase in our interest expense or additional dilution to stockholders. If additional funds are needed and are not available, our business could be negatively impactedWe currently anticipate that our available cash resources combined with the net proceeds from this offering will be sufficient to fund our operating needs for at least the next 24 months, including the expansion of our sales and marketing program. Thereafter, we may require additional financing. At this time, we do not have any bank credit facility or other working capital credit line under which we may borrow funds for working capital or other general corporate purposes. If our plans or assumptions change or are inaccurate, we may be required to seek additional capital sooner than anticipated. We may need to raise such capital through public or private debt or equity financing. 12 If funds are raised through the issuance of equity securities, the percentage ownership of our then-current stockholders will be reduced and the holders of new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If additional funds are raised through a bank credit facility or the issuance of debt securities, the holder of such indebtedness would have rights senior to your rights and the terms of such indebtedness could impose restrictions on our operations. If we need to raise additional funds, we may not be able to do so on terms favorable to us, or at all. If we cannot raise adequate funds on acceptable terms, we may not be able to continue to fund our operations. Risks Particular To Our Industry The market for our services is new and highly uncertainThe market for wireless data services is still emerging and continued growth in demand for and acceptance of these services remains uncertain. Current barriers to market acceptance of these services include cost, reliability, functionality and ease of use. We cannot be certain that these barriers will be overcome. If the market for our services does not grow or grows slower than we currently anticipate, our business, financial condition and operating results could be adversely affected. New laws and regulations that impact our industry could adversely affect our businessWe are not currently subject to direct regulation by the Federal Communications Commission or any other governmental agency, other than regulations applicable to businesses in general. However, in the future, we may become subject to regulation by the FCC or another regulatory agency. In addition, the wireless carriers who supply us airtime are subject to regulation by the FCC and regulations that affect them could adversely affect our business. Our business could suffer depending on the extent to which our activities or those of our customers or suppliers are regulated. Risks Particular To The Offering Our stock price, like that of many technology companies, may be volatile and it is difficult to predict whether a market for our common stock will developWe expect that the market price of our common stock will fluctuate as a result of variations in our quarterly operating results. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to a variety of factors, including: . announcements of technological or competitive developments; . acquisitions or strategic alliances by us or our competitors; . the gain or loss of a significant customer or order; . changes in estimates of our financial performance or changes in recommendations by securities analysts regarding us or our industry; or . general market or economic conditionsThis risk may be heightened because our industry is new and evolving, characterized by rapid technological change and susceptible to the introduction of new competing technologies or competitors In addition, equity securities of many technology companies have experienced significant price and volume fluctuations. These price and volume fluctuations often have been unrelated to the operating performance of the affected companies. Volatility in the market price of our common stock could result in securities class action litigation. This type of litigation, regardless of the outcome, could result in substantial costs and a diversion of management's attention and resources. 13 We cannot predict the extent to which investor interest in our common stock will lead to the development of a trading market or how liquid that market might become. As discussed earlier, our financial results are difficult to predict and could fluctuate significantly. Upon completion of this offering, you will experience dilutionOur tangible assets are readily identified assets like property, equipment, cash, securities and accounts receivable. The value of these assets on a pro forma as adjusted basis minus the value of our liabilities equals $3.75 per share, assuming the offering is completed. The offering price exceeds this amount by $12.25 per share. Therefore, you will be paying more for a share of stock than the value reflected in our accounts of tangible assets for that share. If we were forced to sell all our assets and distribute all the proceeds, you would not recover the amount you paid for shares unless we can sell the assets for more than the value we report for our tangible assets. We also have outstanding a large number of stock options and warrants to purchase common stock with exercise prices significantly below the price of shares in this offering. You will experience further dilution to the extent these options or warrants are exercised. We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stockProvisions of our certificate of incorporation and bylaws and provisions of Delaware law could d | NaN | 21.21 | 1527.34 | NaN | 160000000 | NaN | 1659 | True | 2000 |
| 3321 | 30.0 | 159.6 | NaN | -92.334760 | KNOXVILLE | 12.8100 | -0.938 | NaN | 10471.58 | False | NYSE | False | True | Healthcare, Medical Equipment, and Drugs | Healthcare | Healthcare, Medical Equipment, and Drugs | 115000.0 | 159600000.0 | TeamHealth Inc | 0.649373 | 1928499.0 | Merrill Lynch & Co Inc\nGoldman Sachs & Co\nBarclays\nCiti | 2175.81 | 40.705 | 22.0 | 0 | 9 | 9.0 | 12.00 | 1.000000 | True | 157995.0 | 1 | 5.445111 | 9.00100 | 9.001 | 49.006 | risk factors an investment in our common stock involves risks. before investing in our common stock, you should carefully consider the following information about these risks, together with the other information contained in this prospectus, including managements discussion and analysis of financial condition and results of operations and the financial statements and the notes thereto included elsewhere in this prospectus. if any of the following risks actually occurs, our business, financial condition, operating results and prospects could be adversely affected, which in turn could adversely affect the value of our common stock. risks related to our business the current u.s. and global economic conditions could materially adversely affect our results of operations and business condition. our operations and performance depend significantly on economic conditions. if the current economic situation continues or deteriorates further, our business could be negatively impacted by reduced demand for our services or third-party disruptions resulting from higher levels of unemployment, government budget deficits and other adverse economic conditions. for example, loss of jobs and lack of health insurance as a result of the deterioration of the economy could depress demand for healthcare services generally. patient volume trends in our hospital eds could be adversely affected as individuals potentially defer or forego seeking care in such departments due to the loss or reduction of coverage previously available to such individuals under commercial insurance or government healthcare programs. in addition, the continuation of the current economic downturn may adversely impact our ability to collect for the services we provide as higher unemployment and reductions in commercial managed care enrollment may increase the number of uninsured and underinsured patients seeking healthcare at one of our staffed eds. we could also be negatively affected if the federal government or the states reduce funding of medicare, medicaid and other federal and state healthcare programs in response to increasing deficits in their budgets. additionally, private third-party payers may take cost-containment measures, including lowering reimbursement rates or increasing patient co-payments and deductibles, which could adversely affect our business. any of these risks, among other economic factors, could have a material adverse effect on our financial condition and operating results, and the risks could become more pronounced if the problems in the u.s. and global economies continue or become worse.the current u.s. and state health reform legislative initiatives could adversely affect our operations and business condition. the obama administration and congress are considering federal legislation to reform the u.s. healthcare system. the current proposed federal health reform legislation includes various bills with various congressional sponsors. a common issue addressed in the proposed federal health reform initiatives is increasing access to health benefits for the uninsured or underinsured populations. some of the current proposed federal health reform legislation includes medicare payment reforms and reductions that could reduce physician payments in the future. some states also have pending health reform legislative initiatives. at this time, we are unable determine the ultimate content or timing of any health reform legislation. we will not be able to determine the effect that any such legislation may have on our operations and business condition until such legislation is enacted, but such legislation may adversely affect our operations and business condition.laws and regulations that regulate payments for medical services made by government sponsored healthcare programs could cause our revenues to decrease. our affiliated physician groups derive a significant portion of their net revenues less provision for uncollectibles from payments made by government sponsored healthcare programs such as medicare and state reimbursed programs. there are public and private sector pressures to restrain healthcare costs and to restrict reimbursement rates for medical services. any change in reimbursement policies, practices, interpretations, 12 regulations or legislation that places limitations on reimbursement amounts or practices could significantly affect hospitals, and consequently affect our operations unless we are able to renegotiate satisfactory contractual arrangements with our hospital clients and contracted physicians. under medicare law, centers for medicare& medicaid services, or cms, is required to adjust the medicare physician fee schedule, or mpfs, payment rates annually based on an update formula which includes application of the sustainable growth rate, or sgr, that was adopted in the balanced budget act of 1997. this formula has yielded negative updates every year beginning in 2002, although cms was able to take administrative steps to avert a reduction in 2003 and congress has taken a series of legislative actions to prevent reductions from 2004 to 2009. on october30, 2008, cms released its final 2009 mpfs covering the period from january1, 2009 through december31, 2009. as a result of a 1.1% statutory increase in the 2009 mpfs and an increase in the physician work values associated with certain emergency services, we estimate that the 2009 mpfs effectively provides for an average 4.0% increase in the 2009 payment amount over the 2008 payment amount for services most commonly provided by emergency physicians. we estimate these payment updates will increase our revenues from medicare and other revenue sources whose rates are linked to the medicare fee schedule by an estimated $9.0 million in 2009. additionally, the 2009 mpfs extends the physician quality reporting initiative, or pqri, payment incentive for physicians who successfully report measures under pqri for 2009 and 2010. the payments under the pqri extension increased from 1.5% in 2008 to 2.0% in 2009. on october30, 2009, cms released its final 2010 mpfs payment changes covering the period from january 1, 2010 through december 30, 2010. the final rule includes a 21.2% rate reduction in the mpfs for 2010 as a result of the application of the sgr. the pqri payment incentives for physicians who successfully report measures under pqri will remain at 2.0% for 2010. although there are current legislative proposals that call for a delay in the application of the sgr until 2011 and increase physician payments by 0.5% for 2010, such proposals have not yet been enacted. absent regulatory changes or further congressional action with respect to the application of the sgr, medicare physician services would be subject to significant reductions beginning on january1, 2010. any future reductions in amounts paid by government programs for physician services or changes in methods or regulations governing payment amounts or practices could cause our revenues to decline and we may not be able to offset reduced operating margins through cost reductions, increased volume or otherwise.if governmental authorities determine that we violate medicare, medicaid or other government payer reimbursement laws or regulations, our revenues may decrease and we may have to restructure our method of billing and collecting medicare, medicaid or other government program payments, respectively. the medicare prescription drug improvement and modernization act of 2003 amended the medicare reassignment statute as of december8, 2003 to permit our independent contractor physicians to reassign their right to receive medicare payments to us. we have restructured our method of billing and collecting medicare payments in light of this statutory reassignment exception. in addition, state medicaid programs have similar reassignment rules. while we seek to comply substantially with applicable medicaid reassignment regulations, government authorities may find that we do not comply in all respects with these regulations. we utilize physician assistants and nurse practitioners, sometimes referred to collectively as mid-level practitioners, to provide care under the supervision of our physicians. state and federal laws require that such supervision be performed and documented using specific procedures. we believe our billing and documentation practices related to our use of mid-level practitioners substantially comply with applicable state and federal laws, but enforcement authorities may find that our practices violate such laws. when our services are covered by multiple third-party payers, such as a primary and a secondary payer, financial responsibility must be allocated among the multiple payers in a process known as coordination of 13 benefits, or cob. the rules governing cob are complex, particularly when one of the payers is medicare or another government program. although we believe we currently have procedures in place to assure that we comply with applicable cob rules and that we process refunds appropriately when we receive overpayments or overprovisions, payers or enforcement agencies may determine that we have violated these requirements. reimbursement to us is typically conditioned on our providing the correct procedure and diagnosis codes and properly documenting both the service itself and the medical necessity of the service. despite our measures to ensure coding accuracy, third-party payers may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable, that the service was not medically necessary, that there was a lack of sufficient supporting documentation, or for other reasons. incorrect or incomplete documentation and billing information, or the incorrect selection of codes, could result in nonpayment, recoupment or allegations of billing fraud. management is not aware of any inquiry, investigation or notice from any governmental entity indicating that we are in violation of any of the medicare, medicaid or other government payer reimbursement laws and regulations. however, such laws and related regulations and regulatory guidance may be ambiguous or contradictory, and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws.we may incur substantial costs defending our interpretations of federal and state government regulations and if we lose, the government could force us to restructure our operations and subject us to fines, monetary penalties and exclusion from participation in government-sponsored programs such as medicare and medicaid. our operations, including our billing and other arrangements with healthcare providers, are subject to extensive federal and state government regulation. such regulations include numerous laws directed at payment for services, conduct of operations, preventing fraud and abuse, laws prohibiting general business corporations, such as us, from practicing medicine, controlling physicians medical decisions or engaging in some practices such as splitting fees with physicians, and laws regulating billing and collection of reimbursement from government programs, such as medicare and medicaid, and from private payers. those laws may have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their application to our operations, including our arrangements with hospitals, physicians and professional corporations. see businessregulatory matters. we believe we are in substantial compliance with these laws, rules and regulations based upon what we believe are reasonable and defensible interpretations of these laws, rules and regulations. however, federal and state laws are broadly worded and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws. if federal or state government officials challenge our operations or arrangements with third parties that we have structured based upon our interpretation of these laws, rules and regulations, the challenge could potentially disrupt our business operations and we may incur substantial defense costs, even if we successfully defend our interpretation of these laws, rules and regulations. in addition, if the government successfully challenges our interpretation as to the applicability of these laws, rules and regulations as they relate to our operations and arrangements with third parties, that may have a material adverse effect on our business, financial condition and results of operations. in the event regulatory action were to limit or prohibit us from carrying on our business as we presently conduct it or from expanding our operations to certain jurisdictions, we may need to make structural, operational and organizational modifications to our company and/or our contractual arrangements with third party payers, physicians, professional corporations and hospitals. our operating costs could increase significantly as a result. we could also lose contracts or our revenues could decrease under existing contracts. moreover, our financing agreements may also prohibit modifications to our current structure and consequently require us to obtain the 14 consent of the holders of such indebtedness or require the refinancing of such indebtedness. any restructuring would also negatively impact our operations because our managements time and attention would be diverted from running our business in the ordinary course. for example, while we believe that our operations and arrangements comply substantially with existing applicable laws relating to the corporate practice of medicine and fee splitting, we cannot assure you that our existing contractual arrangements, including non-competition agreements with physicians, professional corporations and hospitals, will not be successfully challenged in certain states as unenforceable or as constituting the unlicensed practice of medicine or prohibited fee splitting. in this event, we could be subject to adverse judicial or administrative interpretations or to civil or criminal penalties, our contracts could be found to be legally invalid and unenforceable or we could be required to restructure our contractual arrangements with our affiliated physician groups.we are subject to billing investigations by federal and state authorities that could have a material adverse effect on our business, financial conditions and results of operations. state and federal statutes impose substantial penalties, including civil and criminal fines, exclusion from participation in government healthcare programs and imprisonment, on entities or individuals (including any individual corporate officers or physicians deemed responsible) that fraudulently or wrongfully bill governmental or other third-party payers for healthcare services. in addition, federal and certain state laws allow a private person to bring a civil action in the name of the u.s. government for false billing violations or other types of false claims. we believe that additional audits, inquiries and investigations from government agencies will continue to occur from time to time in the ordinary course of our business, which could result in substantial defense costs to us and a diversion of managements time and attention. such pending or future audits, inquiries or investigations, or the public disclosure of such matters, may have a material adverse effect on our business, financial condition and results of operations.we are subject to complex rules and regulations that govern our licensing and certification, and the failure to comply with these rules can result in delays in, or loss of, reimbursement for our services or civil or criminal sanctions. we, our affiliated physicians and the facilities in which we operate are subject to various federal, state and local licensing and certification laws and regulations and accreditation standards and other laws relating to, among other things, the adequacy of medical care, equipment, personnel and operating policies and procedures. we are also subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditations. in certain jurisdictions, changes in our ownership structure require pre- or post-notification to governmental licensing and certification agencies. relevant laws and regulations may also require re-application and approval to maintain or renew our operating authorities or require formal application and approval to continue providing services under certain government contracts. the relevant laws and regulations are complex and may be unclear or subject to interpretation. we are pursuing the steps we believe we must take to retain or obtain all requisite operating authorities. while we have made reasonable efforts to substantially comply with federal, state and local licensing and certification laws and regulations and accreditation standards based upon what we believe are reasonable and defensible interpretations of these laws, regulations and standards, agencies that administer these programs may find that we have failed to comply in some material respects. failure to comply with these licensing, certification and accreditation laws, regulations and standards could result in our services being found non-reimbursable or prior payments being subject to recoupment, and can give rise to civil or, in extreme cases, criminal penalties. in order to receive payment from medicare, medicaid and certain other government programs, healthcare providers are required to enroll in these programs by completing complex enrollment applications. 15 certain government programs, including medicare and medicaid programs, require notice or re-enrollment when certain ownership changes occur. generally, in jurisdictions where we are required to obtain a new licensing authority, we may also be required to re-enroll in that jurisdictions government payer program. if the payer requires us to complete the re-enrollment process prior to submitting reimbursement requests, we may be delayed in payment, receive refund requests or be subject to recoupment for services we provide in the interim. compliance with these change in ownership requirements is complicated by the fact that they differ from jurisdiction to jurisdiction, and in some cases are not uniformly applied or interpreted even within the same jurisdiction. failure to comply with these enrollment and reporting requirements could lead not only to delays in payment and refund requests, but in extreme cases could give rise to civil (including refunding of payments for services rendered) or criminal penalties in connection with prior changes in our operations and ownership structure. while we made reasonable efforts to substantially comply with these requirements in connection with prior changes in our operations and ownership structure, the agencies that administer these programs may find that we have failed to comply in some material respects.we could be subject to professional liability lawsuits, some of which we may not be fully insured against or reserved for, which could adversely affect our financial condition and results of operations. in recent years, physicians, hospitals and other participants in the healthcare industry have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories such as negligent hiring, supervision and credentialing, and vicarious liability for acts of their employees or independent contractors. many of these lawsuits involve large claims and substantial defense costs. although we do not engage in the practice of medicine or provide medical services nor do we control the practice of medicine by our affiliated physicians or affiliated medical groups or the compliance with regulatory requirements applicable to such physicians and physician groups, we have been and are involved in this type of litigation, and we may become so involved in the future. in addition, through our management of hospital departments and provision of non-physician healthcare personnel, patients who receive care from physicians or other healthcare providers affiliated with medical organizations and physician groups with whom we have a contractual relationship could sue us. effective march12, 2003, we began insuring our professional liability risks principally through a program of self-insurance reserves, commercial insurance and a captive insurance company arrangement. under our current professional liability insurance program, our exposure for claim losses under professional liability insurance policies provided to affiliated physicians and other healthcare practitioners is limited to the amounts of individual policy coverage limits but there is no limit for claim losses that exceed aggregate losses incurred under all insurance provided to affiliated physicians and other healthcare practitioners or for individual or aggregate professional liability losses incurred by us or other corporate entities that exceed aggregate losses incurred under such insurance. further, we may be exposed to individual claim losses in excess of limits of coverage under existing or historical insurance programs. while our provisions for professional liability claims and expenses are determined through actuarial estimates, such actuarial estimates may be exceeded by actual losses and related expenses in the future. claims, regardless of their merit or outcome, may also adversely affect our reputation and ability to expand our business. we could also be liable for claims against our affiliated physicians for incidents that occurred but were not reported during periods for which claims-made insurance covered the related risk. under generally accepted accounting principles, the cost of professional liability claims, which includes costs associated with litigating or settling claims, is accrued when the incidents that give rise to the claims occur. the accrual includes an estimate of the losses that will result from incidents, which occurred during the claims-made period, but were not reported during that period. these claims are referred to as incurred-but-not-reported claims, or ibnr claims. with respect to those physicians for whom we provide coverage for claims that occurred during periods prior to march12, 2003, we have acquired extended reporting period coverage, or tail coverage, for ibnr claims from a commercial insurance company. claim losses for periods prior to march12, 2003 may exceed the limits of available insurance coverage or reserves established by us for any losses in excess of such insurance coverage limits. 16 furthermore, for those portions of our professional liability losses that are insured through commercial insurance companies, we are subject to the credit risk of those insurance companies. while we believe our commercial insurance company providers are currently creditworthy, such insurance companies may not remain so in the future.the reserves that we have established for our professional liability losses are subject to inherent uncertainties and any deficiency may lead to a reduction in our net earnings. we have established reserves for losses and related expenses that represent estimates at a given point in time involving actuarial and statistical projections of our expectations of the ultimate resolution and administration of costs of losses incurred for professional liability risks for the period on and after march12, 2003. we have also established a reserve for potential losses in excess of commercial insurance aggregate coverage limits for the period prior to march12, 2003. insurance reserves are inherently subject to uncertainty. our reserves are based on historical claims, demographic factors, industry trends, severity and exposure factors and other actuarial assumptions. studies of projected ultimate professional liability losses are performed at least annually. we use the actuarial estimates to establish reserves. our reserves could be significantly affected should current and future occurrences differ from historical claim trends and expectations. while claims are monitored closely when estimating reserves, the complexity of the claims and the wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. actual losses and related expenses may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. if our estimated reserves are determined to be inadequate, we will be required to increase reserves at the time of such determination, which would result in a corresponding reduction in our net earnings in the period in which such deficiency is determined. see managements discussion and analysis of financial condition and results of operationscritical accounting policies and estimatesinsurance reserves, note 14 to the audited consolidated financial statements and note 11 to the unaudited consolidated financial statements included in this prospectus.we depend on reimbursements by third-party payers, as well as payments by individuals, which could lead to delays and uncertainties in the reimbursement process. we receive a substantial portion of our payments for healthcare services on a fee for service basis from third-party payers, including medicare, medicaid, the u.s. governments military healthcare system and other governmental programs, private insurers and managed care organizations. we received approximately 57% of our net revenues less provision for uncollectibles from such third-party payers during 2008 and 2007. such amounts included approximately 24% from medicare and medicaid, collectively, in 2008 and 2007. the reimbursement process is complex and can involve lengthy delays. third-party payers continue their efforts to control expenditures for healthcare, including proposals to revise reimbursement policies. while we recognize revenue when healthcare services are provided, there can be delays before we receive payment. in addition, third-party payers may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that services provided were not medically necessary, that services rendered in an ed did not require ed level care or that additional supporting documentation is necessary. retroactive adjustments may change amounts realized from third-party payers. we are subject to governmental audits of our reimbursement claims under medicare, medicaid, the u.s. governments military healthcare system and other governmental programs and may be required to repay these agencies if a finding is made that we were incorrectly reimbursed. delays and uncertainties in the reimbursement process may adversely affect accounts receivable, increase the overall costs of collection and cause us to incur additional borrowing costs. we also may not be paid with respect to co-payments and deductibles that are the patients financial responsibility, or in those instances when physicians provide healthcare services to uninsured and underinsured individuals. amounts not covered by third-party payers are the obligations of individual patients for which we may not receive whole or partial payment. we may not receive whole or partial payments from uninsured and underinsured individuals. as a result of government laws and regulations requiring hospitals to screen and treat 17 patients who have an emergency medical condition regardless of their ability to pay and our obligation to provide such screening or treatment, a substantial increase in self-pay patients could result in increased costs associated with physician services for which sufficient net revenues less provision for uncollectibles are not realized to offset such additional physician service costs. in such an event, our earnings and cash flow would be adversely affected, potentially affecting our ability to maintain our restrictive debt covenant ratios and meet our financial obligations. in summary, the risks associated with third-party payers, co-payments and deductibles and uninsured individuals and the inability to monitor and manage accounts receivable successfully could have a material adverse effect on our business, financial condition and results of operations. furthermore, our collection policies or our provisions for allowances for medicare, medicaid and contractual discounts and doubtful accounts receivable may not be adequate.we are subject to the financial risks associated with our fee for service contracts which could decrease our revenues, including changes in patient volume, mix of insured and uninsured patients and patients covered by government sponsored healthcare programs and third party reimbursement rates. we derive our revenues primarily through two types of arrangements. if we have a flat fee contract with a hospital, the hospital bills and collects fees for physician services and remits a negotiated amount to us monthly. if we have a fee for service contract with a hospital, either we or our affiliated physicians collect the fees for physician services. consequently, under fee for service contracts, we assume the financial risks related to changes in the mix of insured, uninsured and underinsured patients and patients covered by government sponsored healthcare programs, third party reimbursement rates and changes in patient volume. we are subject to these risks because under our fee for service contracts, our fees decrease if a smaller number of patients receive physician services or if the patients who do receive services do not pay their bills for services rendered or we are not fully reimbursed for services rendered. our fee for service contractual arrangements also involve a credit risk related to services provided to uninsured and underinsured individuals. this risk is exacerbated in the hospital ed physician-staffing context because federal law requires hospital eds to evaluate all patients regardless of the severity of illness or injury. we believe that uninsured and underinsured patients are more likely to seek care at hospital eds because they frequently do not have a primary care physician with whom to consult. we also collect a relatively smaller portion of our fees for services rendered to uninsured and underinsured patients than for services rendered to insured patients. in addition, fee for service contracts also have less favorable cash flow characteristics in the start-up phase than traditional flat-rate contracts due to longer collection periods. our revenues could also be reduced if third-party payers successfully negotiate lower reimbursement rates for our physician services.failure to timely or accurately bill for our services could have a negative impact on our net revenues, bad debt expense and cash flow. billing for ed visits in a hospital setting and other physician-related services is complex. the practice of providing medical services in advance of payment or, in many cases, prior to assessment of ability to pay for such services, may have a significant negative impact on our net revenues, bad debt expense and cash flow. we bill numerous and varied payers, including self-pay patients, various forms of commercial insurance companies and medicare, medicaid, the u.s. governments military healthcare system and other government programs. these different payers typically have differing forms of billing requirements that must be met prior to receiving payment for services rendered. reimbursement to us is typically conditioned on our providing the proper procedure and diagnosis codes. incorrect or incomplete documentation and billing information could result in non-payment for services rendered. additional factors that could complicate our billing include: disputes between payers as to which party is responsible for payment; variation in coverage for similar services among various payers; 18 the difficulty of adherence to specific compliance requirements, coding and various other procedures mandated by responsible parties; failure to obtain proper physician enrollment and documentation in order to bill various commercial and governmental payers; failure to identify and obtain the proper insurance coverage for the patient; a | 0.043260 | 22.02 | 1108.86 | 940.946 | 159600000 | 1423.441 | 1231 | False | 2009 |
| 3322 | 158.0 | 446.4 | NaN | 838.972304 | WESTLAKE VILLAGE | 12.2800 | 0.062 | NaN | 9786.87 | False | NYSE | False | True | Consumer NonDurables -- Food, Tobacco, Textiles, Apparel, Leather, Toys | Agriculture | Consumer Durables, NonDurables, Wholesale, Retail, and Some Services (Laundries, Repair Shops) | NaN | NaN | Dole Food Co Inc | 0.389091 | 5357250.0 | Goldman Sachs & Co\nMerrill Lynch & Co Inc\nDeutsche Bank Securities Corp.\nWells Fargo Bank NA | 2123.93 | 84.085 | NaN | 3 | 9 | NaN | 12.50 | NaN | False | NaN | 0 | 4.667222 | 9.00100 | 9.001 | 42.005 | risk factors investing in our common stock involves a high degree of risk. you should carefully consider the risks described below and the other information in this prospectus, including the consolidated financial statements and the related notes, before making a decision to buy our common stock. if any of the following risks actually occurs, our business could be harmed. in that case, the trading price of our common stock could decline, and you may lose all or part of your investment. risks relating to our business and industryadverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business. fresh produce, including produce used in canning and other packaged food operations, is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are quite common but difficult to predict. unfavorable growing conditions can reduce both crop size and crop quality. this risk is particularly true with respect to regions or countries from which we source a significant percentage of our products. in extreme cases, entire harvests may be lost in some geographic areas. these factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition. fresh produce is also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. for example, black sigatoka is a fungal disease that affects banana cultivation in most areas where they are grown commercially. the costs to control this disease and other infestations vary depending on the severity of the damage and the extent of the plantings affected. moreover, there can be no assurance that available technologies to control such infestations will continue to be effective. these infestations can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.our business is highly competitive and we cannot assure you that we will maintain our current market share. many companies compete in our different businesses. however, only a few well-established companies operate on both a national and a regional basis with one or several branded product lines. we face strong competition from these and other companies in all our product lines. important factors with respect to our competitors include the following: some of our competitors may have greater operating flexibility and, in certain cases, this may permit them to respond better or more quickly to changes in the industry or to introduce new products and packaging more quickly and with greater marketing support. several of our packaged food product lines are sensitive to competition from national or regional brands, and many of our product lines compete with imports, private label products and fresh alternatives. we cannot predict the pricing or promotional actions of our competitors or whether those actions will have a negative effect on us. there can be no assurance that we will continue to compete effectively with our present and future competitors, and our ability to compete could be materially adversely affected by our leveraged position. our earnings are sensitive to fluctuations in market prices and demand for our products. excess supplies often cause severe price competition in our industry. growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product. fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. some items, such as lettuce, must be sold more quickly, while other items can be held in cold storage for longer periods of time. the selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce. in addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. to the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products. however, even if market prices are unfavorable, produce items which are ready to be, or have been harvested must be brought to market promptly. a decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business, results of operations and financial condition.our earnings are subject to seasonal variability. our earnings may be affected by seasonal factors, including: the seasonality of our supplies and consumer demand; the ability to process products during critical harvest periods; and the timing and effects of ripening and perishability. although banana production tends to be relatively stable throughout the year, banana pricing is seasonal because bananas compete against other fresh fruit that generally comes to market beginning in the summer. as a result, banana prices are typically higher during the first half of the year. our fresh vegetables segment experiences some seasonality as reflected by higher earnings in the first half of the year. our packaged foods segment experiences peak demand during certain well-known holidays and observances.currency exchange fluctuations may impact the results of our operations. we distribute our products in more than 90 countries throughout the world. our international sales are usually transacted in u.s.dollars, and european and asian currencies. our results of operations are affected by fluctuations in currency exchange rates in both sourcing and selling locations. although we enter into foreign currency exchange forward contracts from time to time to reduce our risk related to currency exchange fluctuation, our results of operations may still be impacted by foreign currency exchange rates, primarily the yen-to-u.s.dollar and euro-to-u.s.dollar exchange rates. for instance, we currently estimate that a 10% strengthening of the u.s.dollar relative to the japanese yen, euro and swedish krona would have reduced 2008 operating income by approximately $76million excluding the impact of foreign currency exchange hedges. because we do not hedge against all of our foreign currency exposure, our business will continue to be susceptible to foreign currency fluctuations.increases in commodity or raw product costs, such as fuel, paper, plastics and resins, could adversely affect our operating results. many factors may affect the cost and supply of fresh produce, including external conditions, commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations, 15 agricultural programs, severe and prolonged weather conditions and natural disasters. increased costs for purchased fruit and vegetables have in the past negatively impacted our operating results, and there can be no assurance that they will not adversely affect our operating results in the future. the price of various commodities can significantly affect our costs. for example, the price of bunker fuel used in shipping operations, including fuel used in ships that we own or charter, is an important variable component of transportation costs. our fuel costs have increased substantially in recent years, and there can be no assurance that there will not be further increases in the future. in addition, fuel and transportation cost is a significant component of the price of much of the produce that we purchase from growers or distributors, and there can be no assurance that we will be able to pass on to our customers the increased costs we incur in these respects. the cost of paper and tinplate are also significant to us because some of our products are packed in cardboard boxes or cans for shipment. if the price of paper or tinplate increases and we are not able to effectively pass these price increases along to our customers, then our operating income will decrease. increased costs for paper and tinplate have in the past negatively impacted our operating income, and there can be no assurance that these increased costs will not adversely affect our operating results in the future.we face risks related to our former use of the pesticide dbcp. we formerly used dibromochloropropane, or dbcp, a nematocide that was used on a variety of crops throughout the world. the registration for dbcp with the u.s.government was cancelled in 1979 based in part on an apparent link to male sterility among chemical factory workers who produced dbcp. there are a number of pending lawsuits in the united states and other countries against the manufacturers of dbcp and the growers, including us, who used it in the past. the cost to defend or settle these lawsuits, and the costs to pay any judgments or settlements resulting from these lawsuits, or other lawsuits which might be brought, could have a material adverse effect on our business, financial condition or results of operations. see note11 to the condensed consolidated financial statements for the second quarter of fiscal year 2009 included elsewhere in this prospectus.the use of herbicides and other potentially hazardous substances in our operations may lead to environmental damage and result in increased costs to us. we use herbicides and other potentially hazardous substances in the operation of our business. we may have to pay for the costs or damages associated with the improper application, accidental release or the use or misuse of such substances. our insurance may not be adequate to cover such costs or damages or may not continue to be available at a price or under terms that are satisfactory to us. in such cases, payment of such costs or damages could have a material adverse effect on our business, results of operations and financial condition.the financing arrangements for the going-private merger transactions in 2003may increase our exposure to tax liability. a portion of our senior secured credit facilities have been incurred by our foreign subsidiaries and were used to fund the going-private merger transactions in 2003 through which mr.murdock became our sole, indirect stockholder. on august27, 2009, the internal revenue service, or irs, completed its examination of our u.s.federal income tax returns for the years 2002 to 2005 and issued a revenue agents report, or rar, that includes various proposed adjustments, including with respect to the going-private merger transactions. the irs is proposing that certain funding used in the going-private merger transactions is currently taxable and that certain related investment banking fees are not deductible. the net tax deficiency associated with the rar is $122million plus interest. we will file a protest letter vigorously challenging the proposed adjustments contained in the rar and will pursue resolution of these issues with the appeals division of the irs. however, we may not be successful with respect to some or all of our appeal, which could result in a material tax liability and 16 could adversely affect our results of operations and financial condition. we believe, based in part upon the advice of our tax advisors, that our tax treatment of such transactions was appropriate.we face other risks in connection with our international operations. our operations are heavily dependent upon products grown, purchased and sold internationally. in addition, our operations are a significant factor in the economies of many of the countries in which we operate, increasing our visibility and susceptibility to legal or regulatory changes. these activities are subject to risks that are inherent in operating in foreign countries, including the following: foreign countries could change laws and regulations or impose currency restrictions and other restraints; in some countries, there is a risk that the government may expropriate assets; some countries impose burdensome tariffs and quotas; political changes and economic crises may lead to changes in the business environment in which we operate; international conflict, including terrorist acts, could significantly impact our business, financial condition and results of operations; in some countries, our operations are dependent on leases and other agreements;and economic downturns, political instability and war or civil disturbances may disrupt production and distribution logistics or limit sales in individual markets. banana imports from latin america are subject to a tariff of 176 euros per metric ton for entry into the european union, or eu, market. under the eus previous banana regime, banana imports from latin america were subject to a tariff of 75euros per metric ton and were also subject to both import license requirements and volume quotas. these license requirements and volume quotas had the effect of limiting access to the eu banana market. the increase in the applicable tariff and the elimination of the volume restrictions applicable to latin american bananas may increase volatility in the market, which could materially adversely affect our business, results of operations or financial condition. see managements discussion and analysis of financial condition and results of operation other matters. in 2005, we received a tax assessment from honduras of approximately $137million (including the claimed tax, penalty, and interest through the date of assessment) relating to the disposition of all of our interest in cervecera hondurea, s.a. in 2001. we have been contesting the tax assessment. see note11 in the notes to the condensed consolidated financial statements for the second quarter of fiscal year 2009 included elsewhere in this prospectus.we may be required to pay significant penalties under european antitrust laws. the european commission, or ec, issued a decision imposing a 45.6million fine against dole and its german subsidiary, or the decision, on october15, 2008. on december24, 2008, we appealed the decision by filing an application for annulment, or application, with the european court of first instance, or cfi. on december3, 2008, the ec agreed in writing that if dole made an initial payment of $10million (7.6million) to the ec on or before january22, 2009, then the ec would stay the deadline for a provisional payment, or coverage by a prime bank guaranty, of the remaining balance (plus interest as from january22, 2009), until april30, 2009. dole made this initial $10million payment on january21, 2009, and dole provided the required bank guaranty for the remaining balance of the fine to the ec by the deadline of april30, 2009. 17 we believe that we have not violated the european competition laws and that our application has substantial legal merit, both for an annulment of the decision and fine in their entirety, or for a substantial reduction of the fine, but no assurances can be given that we will be successful on appeal. furthermore, the ultimate resolution of these items could materially impact our liquidity. we cannot predict the timing or outcome of our appeal of the ecs decision. see note11 in the notes to the condensed consolidated financial statements for the second quarter of fiscal year 2009 included elsewhere in this prospectus.the current global economic downturn could continue to result in a decrease in our sales and revenue, which could continue to adversely affect the results of our operations, and we cannot predict the extent or duration of these trends. as a result of the current global economic downturn, consumers may continue to reduce their purchases and seek value pricing, which may continue to affect sales and pricing of some of our products. such trends could continue to adversely affect the results of our operations and there can be no assurance whether or when consumer confidence will return or that these trends will not increase.global capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our suppliers and customers. the global capital and credit markets have experienced increased volatility and disruption over the past year, making it more difficult for companies to access those markets. we depend in part on stable, liquid and well-functioning capital and credit markets to fund our operations. although we believe that our operating cash flows, access to capital and credit markets and existing revolving credit agreement will permit us to meet our financing needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.the current global economic downturn may have other impacts on participants in our industry, which cannot be fully predicted. the full impact of the current global economic downturn on customers, vendors and other business partners cannot be anticipated. for example, major customers or vendors may have financial challenges unrelated to us that could result in a decrease in their business with us or, in extreme cases, cause them to file for bankruptcy protection. similarly, parties to contracts may be forced to breach their obligations under those contracts. although we exercise prudent oversight of the credit ratings and financial strength of our major business partners and seek to diversify our risk to any single business partner, there can be no assurance that there will not be a bank, insurance company, supplier, customer or other financial partner that is unable to meet its contractual commitments to us. similarly, stresses and pressures in the industry may result in impacts on our business partners and competitors which could have wide ranging impacts on the future of the industry.terrorism and the uncertainty of war may have a material adverse effect on our operating results. terrorist attacks, such as the attacks that occurred in new york and washington,d.c. on september11, 2001, the subsequent response by the united states in afghanistan, iraq and other locations, and other acts of violence or war in the united states or abroad may affect the markets in which we operate and our operations and profitability. from time to time in the past, our operations or personnel have been the targets of terrorist or criminal attacks, and the risk of such attacks impacts our operations and results in increased security costs. further terrorist attacks against the united states or operators of united states-owned businesses outside the united states may occur, or 18 hostilities could develop based on the current international situation. the potential near-term and long-term effect these attacks may have on our business operations, our customers, the markets for our products, the united states economy and the economies of other places we source or sell our products is uncertain. the consequences of any terrorist attacks, or any armed conflicts, are unpredictable, and we may not be able to foresee events that could have an adverse effect on our markets or our business.our worldwide operations and products are highly regulated in the areas of food safety and protection of human health and the environment. our worldwide operations are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including laws and regulations governing the use and disposal of pesticides and other chemicals. these regulations directly affect day-to-day operations, and violations of these laws and regulations can result in substantial fines or penalties. there can be no assurance that these fines or penalties would not have a material adverse effect on our business, results of operations and financial condition. to maintain compliance with all of the laws and regulations that apply to our operations, we have been and may be required in the future to modify our operations, purchase new equipment or make capital improvements. further, we may recall a product (voluntarily or otherwise) if we or the regulators believe it presents a potential risk. in addition, we have been and in the future may become subject to lawsuits alleging that our operations and products caused personal injury or property damage.we are subject to the risk of product contamination and product liability claims. the sale of food products for human consumption involves the risk of injury to consumers. such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases. we have from time to time been involved in product liability lawsuits, none of which were material to our business. while we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. for example, in the fall of 2006, a third party from whom we and others had purchased spinach recalled certain packaged fresh spinach due to contamination by e. coli. even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. we maintain product liability insurance, however, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.we are subject to transportation risks. an extended interruption in our ability to ship our products could have a material adverse effect on our business, financial condition and results of operations. similarly, any extended disruption in the distribution of our products could have a material adverse effect on our business, financial condition and results of operations. while we believe we are adequately insured and would attempt to transport our products by alternative means if we were to experience an interruption due to strike, natural disasters or otherwise, we cannot be sure that we would be able to do so or be successful in doing so in a timely and cost-effective manner. events or rumors relating to the dole brand could significantly impact our business. consumer and institutional recognition of the dole trademarks and related brands and the association of these brands with high quality and safe food products are an integral part of our business. the occurrence of any events or rumors that cause consumers and/or institutions to no longer associate these brands with high quality and safe food products may materially adversely affect the value of the dole brand name and demand for our products. we have licensed the dole brand name to several affiliated and unaffiliated companies for use in the united states and abroad. acts or omissions by these companies over which we have no control may also have such adverse effects.a portion of our workforce is unionized and labor disruptions could decrease our profitability. as of june20, 2009, approximately 35% of our employees worldwide worked under various collective bargaining agreements. our collective bargaining agreements with expirations in fiscal 2009 have each been renewed, other than one agreement that is currently under extension. our other collective bargaining agreements will expire in later years. we cannot assure you that we will be able to negotiate these or other collective bargaining agreements on the same or more favorable terms as the current agreements, or at all, and without production interruptions, including labor stoppages. a prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on the portion of our business affected by the dispute, which could impact our business, results of operations and financial condition. risks relating to our indebtednessour substantial indebtedness could adversely affect our operations, including our ability to perform our obligations under our debt obligations. we have a substantial amount of indebtedness. as of june20, 2009, we had approximately $1.2billion in senior secured indebtedness, $738million in senior unsecured indebtedness, including outstanding senior notes and debentures, approximately $66million in capital leases and approximately $53million in unsecured notes payable and other indebtedness. in addition, in connection with the merger transaction, we will assume $85million of dhm holdings debt that will be repaid from a portion of the net proceeds of this offering. our substantial indebtedness could have important consequences to you. for example, our substantial indebtedness may: make it more difficult for us to satisfy our obligations; limit our ability to borrow additional amounts in the future for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy or other purposes or make such financing more costly; result in a triggering of customary cross-default and cross-acceleration provisions with respect to certain of our debt obligations if an event of default or acceleration occurs under one of our other debt obligations; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of our cash flow to fund future working capital, capital expenditures, acquisitions and other general corporate purposes (by way of example, the issuance of our 13.875% senior secured notes due 2014, or 2014 notes, and amendment to the senior secured credit facilities during march 2009 increased our interest rates on these instruments significantly as compared to the interest rates as they existed prior to such events); expose us to the risk of increased interest rates, as certain of our borrowings are at variable rates of interest; 20 require us to sell assets (beyond those assets currently classified as assets held-for-sale) to reduce indebtedness or influence our decisions about whether to do so; increase our vulnerability to competitive pressures and to general adverse economic and industry conditions, including fluctuations in market interest rates or a downturn in our business; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; restrict us from making strategic acquisitions or pursuing business opportunities; place us at a disadvantage compared to our competitors that have relatively less indebtedness;and limit, along with the restrictive covenants in our credit facilities and senior note indentures, among other things, our ability to borrow additional funds. failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.we may be unable to generate sufficient cash flow to service our debt obligations. to service our debt, we require a significant amount of cash. our ability to generate cash, make scheduled payments or refinance our obligations depends on our successful financial and operating performance. our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and various financial, business and other factors, many of which are beyond our control. these factors include among others: economic and competitive conditions; changes in laws and regulations; operating difficulties, increased operating costs or pricing pressures we may experience; and delays in implementing any strategic projects. if our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. if we are required to take any actions referred to above, it could have a material adverse effect on our business, financial condition and results of operations. in addition, we cannot assure you that we would be able to take any of these actions on terms acceptable to us, or at all, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt agreements, in any of which events the default and cross-default risks set forth in the risk factor below titled restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks would become relevant.despite our current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we and our subsidiaries may still incur significant additional indebtedness, including secured indebtedness. incurring more indebtedness could increase the risks associated with our substantial indebtedness. subject to the restrictions in our senior secured credit facilities and the indentures governing our 7.25% senior notes due 2010, or 2010 notes, our 8.875% senior notes due 2011, or 2011 notes, our 8.75% debentures due 2013, or 2013 debentures, our 2014 notes and our 8% senior secured notes due 2016, or 2016 notes, we and certain of our subsidiaries may incur significant additional indebtedness, including additional secured indebtedness. although the terms of our senior secured credit facilities and the indentures governing our 2010 notes, our 2011 notes, our 2013 debentures, our 2014 notes and our 2016 notes contain restrictions on the incurrence of additional indebtedness, these 21 restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be significant. if new debt is added to our and our subsidiaries current debt levels, the related risks that we now face could increase.restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks. the indentures governing our 2010 notes, our 2011 notes, our 2013 debentures, our 2014 notes, our 2016 notes and our senior secured credit facilities, contain various restrictive covenants that limit our and our subsidiaries ability to take certain actions. in particular, these agreements limit our and our subsidiaries ability to, among other things: incur additional indebtedness; make restricted payments (including paying dividends on, redeeming or repurchasing our capital stock); issue preferred stock of subsidiaries; make certain investments or acquisitions; create liens on our assets to secure debt; engage in certain types of transactions with affiliates; place restrictions on the ability of restricted subsidiaries to make payments to us; merge, consolidate or transfer substantially all of our assets; and transfer and sell assets. any or all of these covenants could have a material adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations. any future debt could also contain financial and other covenants more rest | 0.020473 | 40.85 | 1065.48 | 4107.023 | 446437500 | 6778.521 | 2496 | False | 2009 |
| 3323 | 3.0 | 17.5 | 15000.0 | NaN | DENVER | 11.2500 | 0.052 | 26.64 | 5992.86 | False | NASDQ | False | True | Finance | Banking | Other | NaN | NaN | Matrix Capital Corp,Denver,Co | NaN | 262500.0 | Piper Jaffray Inc | 1247.56 | NaN | NaN | 0 | 3 | NaN | 10.00 | NaN | False | NaN | 0 | 6.445000 | 7.00100 | 7.001 | 19.335 | NaN | NaN | 29.65 | 701.46 | NaN | 17500000 | NaN | 3114 | False | 1996 |
| 3324 | 35.0 | 231.0 | 10000.0 | 409.297888 | PITTSBURGH | 22.7500 | 0.016 | 48.21 | 5697.48 | False | NYSE | False | False | Other | Restaraunts, Hotels, Motels | Other | NaN | NaN | Interstate Hotels Co | 0.461449 | 2431000.0 | Merrill Lynch & Co Inc | 1249.15 | -1.616 | NaN | 0 | 6 | NaN | 21.00 | NaN | False | NaN | 0 | 8.438167 | 9.00100 | 9.001 | 50.629 | RISK FACTORS In addition to the other information contained in this Prospectus, the following risks and investment considerations should be carefully considered before purchasing shares of Common Stock offered hereby. Each of the following factors may have a material adverse effect on the Company's operations, financial results, financial condition, liquidity, market valuation or market liquidity in future periods RISKS ASSOCIATED WITH THE LODGING INDUSTRY The Company is subject to the risks inherent in the lodging industry. In addition to the specific risks discussed below, these risks include changes in general, regional and local economic conditions, overbuilding, varying levels of demand for rooms and related services, changes in travel patterns, the recurring need for renovation, refurbishment and improvement of hotel properties, changes in governmental regulations that influence or determine wages, prices and construction and maintenance costs, changes in interest rates, the availability of financing and changes in real estate taxes and operating expensesCOMPETITION FOR GUESTS The lodging industry is highly competitive, and the Company's hotels generally are located in areas that contain numerous competitive properties Competitive factors in the lodging industry include room rates, quality of accommodations, name recognition, service levels and convenience of location and, to a lesser extent, the quality and scope of other amenities, including food and beverage facilities. Many of the properties with which the Company's hotels compete for guests are part of or owned by entities that have substantially greater financial or other resources than the CompanyRISKS ASSOCIATED WITH RAPID EXPANSION Growth Risks. The Company's revenues and net income have grown substantially during the past several years. Since consummation of the IPO, the Company's portfolio of Owned Hotels has increased from 14 hotels to 23 hotels, and the Company intends to continue to pursue a growth-oriented strategy for the foreseeable future, but there can be no assurance that the Company will achieve its growth objectives. The Company is subject to a variety of business risks generally associated with growing companies. The Company's ability to successfully pursue new growth opportunities will depend on a number of factors, including, among others, the Company's ability to identify suitable growth opportunities, finance acquisitions and integrate new hotels into its operations, as well as the competitive climate and the availability and cost of capital. While the Company believes that it will have sufficient resources to pursue its strategy, this belief is premised in part on adequate cash being generated from operations. The Company may in the future seek an additional increase in the capital available to it under its Acquisition Facility or otherwise obtain additional debt or equity financing, depending upon the amount of capital required to pursue future growth opportunities or address other needs, conditions in the capital markets and other factors. There can be no assurance that such increase or additional financing will be available to the Company on acceptable terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition, there can be no assurance that the Company will be able to successfully integrate new hotels into its operations or that new hotels will achieve revenue and profitability levels comparable to the Company's existing portfolio hotels. Furthermore, the Company's expansion within its existing markets could adversely affect the financial performance of its existing portfolio hotels and expansion into new markets may present operating and marketing challenges that are different from those currently encountered by the Company in its existing markets. There can be no assurance that the Company will anticipate all of the changing demands that expanding operations will impose on the Company. Acquisition and Development Risks. The Company expects to acquire additional hotels in the future. Acquisitions entail the risk that investments will fail to perform in accordance with expectations. In addition, the Company intends to selectively develop new mid-scale and upper economy hotels in the future. New project development is subject to a number of risks, including market or site deterioration after acquisition and the possibility of construction delays or cost overruns due to regulatory approvals, inclement weather, labor or material shortages, work stoppages and the continued availability of construction and permanent financing. 7 12 CERTAIN EFFECTS OF ACQUISITIONS Since its IPO, the Company has acquired nine hotels. Under the purchase method of accounting, the assets, liabilities and results of operations associated with such acquisitions have been included in the Company's financial position and results of operations since the respective dates thereofAccordingly, the financial position and results of operations of the Company as of and for the nine months ended September 30, 1996 and subsequent dates and periods are not comparable to the financial position and results of operations of the Company as of and for prior dates and periods. The pro forma financial information presented gives effect to the IPO, the IPO Acquisitions, the Post-IPO Acquisitions, the Pending Acquisitions, the Equity Inns Transaction, the issuance of 3,534,880 shares of Common Stock in this Offering and certain other adjustments described herein as if such transactions had been completed on prior dates. The pro forma information presented is not necessarily indicative of what the actual financial position and results of operations of the Company would have been as of and for the periods indicatedRISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE At October 15, 1996, the Company owned fee title or controlling partnership interests in 23 of the 161 hotels it managed and operated 17 hotels under leases, ten of which are long-term leases (not including hotels the Company currently manages or leases as a result of the Equity Inns Transaction). In addition, the Company's business strategy includes the acquisition of additional hotels. Accordingly, the Company will be subject to varying degrees of risk generally related to owning or leasing real estate. These risks include, among others, changes in national, regional and local economic conditions, local real estate market conditions, changes in interest rates and in the availability, costs and terms of financing, liability for long-term lease obligations, the potential for uninsured casualty and other losses, the impact of present or future environmental legislation and compliance with environmental laws and adverse changes in zoning laws and other regulations, many of which are beyond the control of the Company. In addition, real estate investments are relatively illiquid; therefore, the ability of the Company to vary its portfolio of owned hotels in response to changes in economic and other conditions may be limitedTERMS OF MANAGEMENT AGREEMENTS On a pro forma basis net management revenues, including the Owned Hotels, represented 6.9% of the Company's total revenues for the nine months ended September 30, 1996. Hotel management agreements expire or are acquired, terminated or renegotiated in the ordinary course of the Company's business Typically, the Company's hotel management agreements may be terminated for various reasons, including default by the Company or sale of or foreclosure on the underlying property. In addition, approximately one-third of the Company's management agreements allow for termination without cause upon 30 to 90 days notice. An additional 21 management agreements allow for termination without cause upon 30 to 90 days notice with the payment of a termination fee. As of October 15, 1996, the Company had management agreements with remaining terms of less than five years for 103 of its 161 managed hotels. These 103 management agreements accounted for $10.7 million, or 3.4%, of the Company's total pro forma revenues for the nine months ended September 30, 1996. Sixteen of these management agreements (which generated $2.4 million, or 0.8%, of the Company's total pro forma revenues for the nine months ended September 30, 1996) are subject to termination in 1997. Although the net number of hotel management agreements to which the Company is a party has increased every year since 1987, there can be no assurance that the Company will continue to obtain new management agreements or that it will be able to renew or replace terminated or expired management agreements, or that the terms of new or renegotiated management agreements will be as favorable to the Company as the terms of prior agreements. In addition to the services called for under its management agreements, the Company often provides purchasing services, equipment leasing services, insurance and risk management services and other ancillary services to third-party hotel owners. On a pro forma basis, 4.4% of the Company's total revenues for the nine months ended September 30, 1996 were comprised of such services. The costs for these management services are typically subject to prospective approval by the hotel owners on an annual basis. Although the Company believes that its charges for these services are generally competitive with those provided by unrelated third 8 13 parties, there can be no assurance that third-party hotel owners will not choose to obtain such services from other providersCOMPETITION FOR MANAGEMENT AGREEMENTS The Company competes in the lodging industry with international, national, regional and local hotel management companies, some of which have greater financial or other resources than the Company. Competitive factors include relationships with hotel owners and investors, the availability of capital, financial performance, contract terms, brand name recognition, marketing support, reservation system capacity and the willingness to provide funds in connection with new management arrangements. In order for the Company to expand its business by acquiring additional management agreements, the Company may be required to offer more attractive terms to hotel owners than it has had to make in the past or to make equity investments in hotel properties. Hotel owners in many cases have been requesting lower base fees coupled with greater incentive fees or seeking capital contributions from independent hotel management companies in the form of loans or equity investmentsQUARTERLY FLUCTUATIONS IN OPERATING RESULTS The lodging industry is seasonal in nature, with the second and third calendar quarters generally accounting for a greater portion of annual revenues than the first and fourth calendar quarters. Quarterly earnings may be adversely affected by events beyond the Company's control, such as poor weather conditions, economic factors and other considerations affecting travel. In addition, the loss of one or several management agreements (which could involve the write-off of capitalized acquisition costs in addition to the loss of future revenues), the timing of achieving incremental revenues from additional hotels and the realization of a gain or loss upon the sale of a hotel also may adversely impact earnings comparisonsRISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS Since its IPO, the Company has financed its acquisitions largely with indebtedness obtained pursuant to the Company's Acquisition Facility, and intends to finance future acquisitions with the proceeds of this Offering, the Acquisition Facility or with other credit facilities obtained by the Company in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The credit agreement with respect to the Acquisition Facility contains restrictive covenants, including covenants limiting capital expenditures, incurrence of debt and sales of assets and requiring the Company to achieve certain financial ratios, some of which will become more restrictive over time. See "Indebtedness of the Company." The Company's existing indebtedness incurred under the Acquisition Facility, as well as its term indebtedness, is secured by mortgages on the Company's hotel properties as well as other assets of the Company. Among other consequences, the leverage of the Company and such restrictive covenants and other terms of the Company's debt instruments could impair the Company's ability to obtain additional financing in the future, to make acquisitions and to take advantage of significant business opportunities that may arise. In addition, the Company's leverage may increase its vulnerability to adverse general economic and lodging industry conditions and to increased competitive pressuresDIVIDEND POLICIES; RESTRICTIONS ON PAYMENT OF DIVIDENDS The Company has not paid any dividends on the Common Stock since the IPO and does not anticipate that it will pay any dividends in the foreseeable future. The Acquisition Facility prohibits payment of dividends or other distributions to shareholders. See "Dividend Policy." CONFLICTS OF INTEREST Milton Fine, the co-founder of the Company and its Chairman of the Board, and individuals and entities affiliated with Mr. Fine (collectively, the "Fine Family Shareholders") will beneficially own approximately 36.9% of the outstanding Common Stock following consummation of the Offering. See "Principal Shareholders." Certain of the Fine Family Shareholders also have ownership interests in 12 hotels that are managed or leased but not owned by the CompanyEach of the Fine Family Shareholders has agreed not to transfer any of its interests in any of these hotels (subject to certain permitted transfers) without first complying with a right 9 14 of first offer and a right of first refusal procedure in favor of the Company See "Certain Relationships and Related Transactions--Transactions with the Fine Family Shareholders." Except for one management agreement pursuant to which the Company waived its management fee for a period ending no later than November 30, 1998, the Company believes that its management agreements and leases for these hotels are on terms no less favorable to the Company than those that could have been obtained from unaffiliated third parties. These relationships, however, coupled with the ownership of Common Stock by the Fine Family Shareholders and representation on the Company's Board of Directors (the "Board") by certain of the Fine Family Shareholders, could give rise to potential conflicts of interest. The Company has implemented a policy requiring transactions between the Company and related parties to be approved by a majority of disinterested directors upon such disinterested directors' determination that the terms of the transaction are no less favorable to the Company than those that could have been obtained from unrelated third parties. There can be no assurance, however, that this policy will always be successful in eliminating the influence of such potential conflicts of interest. See "Management--Directors and Executive Officers." CONTROL BY PRINCIPAL SHAREHOLDERS The Fine Family Shareholders are able to exert substantial influence over the election of directors and the management and affairs of the Company and over the outcome of any corporate transactions or other matters submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the Company's assets. Affiliates of Blackstone Real Estate Advisors L.P. (collectively, "Blackstone") may also be able to exert influence over these matters. Pursuant to a stockholders agreement (the "Interstone Stockholders Agreement") between the Company and Blackstone, dated June 25, 1996, so long as Blackstone owns 25% or more of the shares of Common Stock issued to it on the date of the Interstone Stockholders Agreement, the Fine Family Shareholders have agreed that they will vote all of their shares of Common Stock for the election of a director candidate nominated by Blackstone, and Blackstone has agreed to vote all of its shares of Common Stock for the election of the director candidates nominated by the BoardSUBSTANTIAL RELIANCE ON SENIOR MANAGEMENT The Company will place substantial reliance on the lodging industry knowledge and experience and the continued services of its senior management The Company's future success and its ability to manage future growth depends in large part upon the efforts of these persons and on the Company's ability to attract and retain these key executives and other highly qualified personnelCompetition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel GOVERNMENT REGULATION The Company is subject to numerous foreign and U.S. federal, state and local government laws, including those relating to the preparation and sale of food and beverages (such as health and liquor license laws), accessibility for disabled persons and general building and zoning requirements. Managers of hotels are also subject to laws governing their relationship with hotel employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws, including liquor license laws or increases in minimum wage rate requirements, reduces revenues and profits of hotels owned, leased and managed by the Company and could otherwise adversely affect the Company's operations. Although third-party hotel owners are generally responsible for all costs, expenses and liabilities incurred in connection with operating the hotels under the Company's management agreements, including compliance with government laws, the Company may be contingently liable for certain liabilities for which it does not maintain insurance, including certain employment liabilities, environmental liabilities and, in respect of properties in the United States, claims arising under the Americans with Disabilities Act. The Company also is subject to various foreign and U.S. federal, state and local environmental laws and regulations relating to the environment and the handling of hazardous substances which may impose or create significant potential environmental liabilities. Under the Company's hotel management agreements, third-party hotel owners are generally responsible for any environmental liabilities. However, under certain countries' laws, including those of the United States, the Company also may be exposed to environmental liabilities whether or not the third-party hotel owner is able to satisfy such liabilities. In addition, the Company will be subject to any environmental liabilities arising with respect to its owned hotels. 10 15 ANTI-TAKEOVER PROVISIONS The Company's Articles of Incorporation and By-Laws, and Pennsylvania law, include various provisions that could have the effect of making it more difficult for a third party to acquire control of the Company. See "Description of Capital Stock--Certain Corporate Governance Matters." In addition, the Company's Articles of Incorporation grant the Board authority to issue up to 25,000,000 shares of preferred stock having such rights, preferences and privileges as designated by the Board without shareholder approval. See "Description of Capital Stock--Preferred Stock." The rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of such preferred stock that may be issued in the futureSHARES ELIGIBLE FOR FUTURE SALE No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock (including shares issuable upon the exercise of stock options), or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock. Upon consummation of the Offering, the Company will have outstanding 34,639,296 shares of Common StockOf these shares, 18,190,946 are "restricted securities" under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). The holders of 18,071,441 of these shares have registration rights with respect to future registrations of the Common Stock beneficially owned by them. In connection with this Offering, the Company, each of its directors and executive officers who is a holder of restricted securities, the Fine Family Shareholders and Blackstone have agreed, subject to certain exceptions, not to offer, sell, contract to sell or otherwise dispose of any such shares of Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Trust Leasing and Trust Management have agreed with the Company not to sell any of the Common Stock acquired in connection with the Equity Inns Transaction until June 30, 1997 and not to sell more than 50% of such Common Stock until December 31, 1997See "Principal Shareholders," "Shares Eligible for Future Sale" and "Underwriting." 11 | -0.001829 | 38.37 | 678.44 | 883.761 | 196350000 | 190.385 | 2626 | False | 1996 |
| 3325 | 42.0 | 469.7 | NaN | 1173.752369 | BOSTON | 32.1500 | NaN | 46.34 | 11215.13 | False | NASDQ | False | True | Finance | Trading | Other | NaN | 469724460.0 | LPL Investment Holdings Inc | 0.381623 | 5636693.0 | Goldman Sachs & Co\nMorgan Stanley\nMerrill Lynch & Co Inc\nJP Morgan & Co Inc | 2540.27 | -56.862 | 6.0 | 0 | 14 | 3.0 | 30.00 | NaN | True | 0.0 | 0 | 4.071929 | 6.75075 | 9.001 | 57.007 | risk factors investing in our common stock involves a high degree of risk. you should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding to invest in our common stock. the occurrence of any of the following risks could harm our business, financial condition, results of operations or prospects. in that case, the trading price of our common stock could decline, and you may lose all or part of your investment. risks related to our business and industrywe depend on our ability to attract and retain experienced and productive advisors. we derive a large portion of our revenues from commissions and fees generated by our advisors. our ability to attract and retain experienced and productive advisors has contributed significantly to our growth and success, and our strategic plan is premised upon continued growth in the number of our advisors. if we fail to attract new advisors or to retain and motivate our current advisors, our business may suffer. the market for experienced and productive advisors is highly competitive, and we devote significant resources to attracting and retaining the most qualified advisors. in attracting and retaining advisors, we compete directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance companies and other independent broker-dealers. if we are not successful in attracting or retaining highly qualified advisors, we may not be able to recover the expense involved in attracting and training these individuals. there can be no assurance that we will be successful in our efforts to attract and retain the advisors needed to achieve our growth objectives.our financial condition and results of operations may be adversely affected by market fluctuations and other economic factors. our financial condition and results of operations may be adversely affected by market fluctuations and other economic factors. significant downturns and volatility in equity and other financial markets have had and could continue to have an adverse effect on our financial condition and results of operations. general economic and market factors can affect our commission and fee revenue. for example, a decrease in market levels can: reduce new investments by both new and existing clients in financial products that are linked to the stock market, such as variable life insurance, variable annuities, mutual funds and managed accounts; reduce trading activity, thereby affecting our brokerage commissions; reduce the value of advisory and brokerage assets, thereby reducing asset-based fee incomeand motivate clients to withdraw funds from their accounts, reducing advisory and brokerage assets, advisory fee revenue and asset-based fee income. in addition, because certain of our expenses are fixed, our ability to reduce them over short periods of time is limited, which could negatively impact our profitability.significant interest rate changes could affect our profitability and financial condition. our revenues are exposed to interest rate risk primarily from changes in the interest rates payable to us from banks participating in our cash sweep programs. in the current low interest rate environment, our revenue from our cash sweep program has declined and may decline further due to changes in interest rates or clients moving assets out of our cash sweep program. we may also be 14 limited in the amount we can reduce interest rates payable to clients in our cash sweep program and still offer a competitive return.lack of liquidity or access to capital could impair our business and financial condition. liquidity, or ready access to funds, is essential to our business. we expend significant resources investing in our business, particularly with respect to our technology and service platforms. in addition, we must maintain certain levels of required capital. as a result, reduced levels of liquidity could have a significant negative effect on us. some potential conditions that could negatively affect our liquidity include: illiquid or volatile markets; diminished access to debt or capital marketsor unforeseen cash or capital requirements, adverse legal settlements or judgments (including, among others, risks associated with auction rate securities). the capital and credit markets continue to experience varying degrees of volatility and disruption. in some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for businesses similar to ours. without sufficient liquidity, we could be required to curtail our operations, and our business would suffer. notwithstanding the self-funding nature of our operations, we may sometimes be required to fund timing differences arising from the delayed receipt of funds associated with the settlement of transactions in securities markets. historically, these timing differences were funded either with internally generated cash flow or, if needed, with funds drawn under short-term borrowing facilities, including both committed unsecured lines of credit and uncommitted lines of credit secured by client securities. lpl financial, one of our broker-dealer subsidiaries, utilizes uncommitted lines of credit secured by client securities to fund margin loans and other client transaction-related timing differences. in the event current resources are insufficient to satisfy our needs, we may need to rely on financing sources such as bank debt. the availability of additional financing will depend on a variety of factors such as market conditions; the general availability of credit; the volume of trading activities; the overall availability of credit to the financial services industry; our credit ratings and credit capacityand the possibility that our stockholders, advisors or lenders could develop a negative perception of our long-or short-term financial prospects if the level of our business activity decreases due to a market downturn. similarly, our access to funds may be impaired if regulatory authorities or rating organizations take negative actions against us. disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business. such market conditions may limit our ability to satisfy statutory capital requirements, generate commission, fee and other market-related revenue to meet liquidity needs and access the capital necessary to grow our business. as such, we may be forced to delay raising capital, issue different types of capital than we would otherwise, less effectively deploy such capital or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility. if the counterparties to the derivative instruments we use to hedge our interest rate risk default, we may be exposed to risks we had sought to mitigate. we use derivative instruments to hedge our interest rate risk. if our counterparties fail to honor their obligations under the derivative instruments, our hedges of the interest rate risk will be ineffective. that failure could have an adverse effect on our financial condition, results of operations and cash flows that could be material. for the names of key counterparties upon which we currently rely, see managements discussion and analysis of financial condition and results of operationsquantitative and qualitative disclosures about riskinterest rate risk.a loss of our marketing relationships with manufacturers of financial products could harm our relationship with our advisors and, in turn, their clients. we operate on an open architecture product platform with no proprietary financial products. to help our advisors meet their clients needs with suitable investment options, we have relationships with most of the industry-leading providers of financial and insurance products. we have sponsorship agreements with some manufacturers of fixed and variable annuities and mutual funds that, subject to the survival of certain terms and conditions, may be terminated upon notice. if we lose our relationships with one or more of these manufacturers, our ability to serve our advisors and our business may be materially and adversely affected. risks related to our regulatory environmentregulatory developments and our failure to comply with regulations could adversely affect our business by increasing our costs and exposure to litigation, affecting our reputation and making our business less profitable. our business is subject to extensive u.s. regulation and supervision, including securities and investment advisory services. the securities industry in the united states is subject to extensive regulation under both federal and state laws. our broker-dealer subsidiary, lpl financial, is: registered as a broker-dealer with the securities and exchange commission (sec), each of the 50states, and the district of columbia, puerto rico and the u.s.virgin islands; registered as an investment advisor with the sec; a member of financial industry regulatory authority, inc. (finra); regulated by the commodities future trading commission (cftc) with respect to the futures and commodities trading activities it conducts as an introducing brokerand a member of the nasdaq stock market and the chicago stock exchange. much of the regulation of broker-dealers has been delegated to self-regulatory organizations (sros), namely finra and the municipal securities rulemaking board (msrb). the primary regulators of lpl financial are finra, and for municipal securities, the msrb. the cftc has designated the national futures association (nfa) as lpl financials primary regulator for futures and commodities trading activities. the sec, finra, cftc, office of the comptroller of the currency (occ), various securities and futures exchanges and other u.s.governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws and regulations. there can also be no assurance that other federal or state agencies will not attempt to further regulate our business. these legislative and regulatory initiatives may affect the way in which we conduct our business and may make our business model less profitable. our ability to conduct business in the jurisdictions in which we currently operate depends on our compliance with the laws, rules and regulations promulgated by federal regulatory bodies and the regulatory authorities in each of these jurisdictions. our ability to comply with all applicable laws, rules 16 and regulations is largely dependent on our establishment and maintenance of compliance, audit and reporting systems and procedures, as well as our ability to attract and retain qualified compliance, audit and risk management personnel. while we have adopted policies and procedures reasonably designed to comply with all applicable laws, rules and regulations, these systems and procedures may not be fully effective, and there can be no assurance that regulators or third parties will not raise material issues with respect to our past or future compliance with applicable regulations. our profitability could also be affected by rules and regulations that impact the business and financial communities generally and, in particular, our advisors clients, including changes to the laws governing taxation (including the classification of independent contractor status of our advisors), electronic commerce, privacy and data protection. failure to comply with new rules and regulations, including in particular, rules and regulations that may arise pursuant to the dodd-frank wall street reform and consumer protection act, could subject us to regulatory actions or litigation and it could have a material adverse effect on our business, results of operations, cash flows or financial condition. in addition, new rules and regulations could result in limitations on the lines of business we conduct, modifications to our business practices, increased capital requirements or additional costs. for example, the u.s. department of labor has issued a proposed rule that, if adopted as currently proposed, would broaden the circumstances under which we may be considered a fiduciary under section3(21) of the employee retirement income security act of 1974, as amended (erisa).we are subject to various regulatory ownership requirements, which, if not complied with, could result in the restriction of the ongoing conduct, growth or even liquidation of parts of our business. the business activities that we may conduct are limited by various regulatory agencies. our membership agreement with finra may be amended by application to include additional business activities. this application process is time-consuming and may not be successful. as a result, we may be prevented from entering new potentially profitable businesses in a timely manner, or at all. in addition, as a member of finra, we are subject to certain regulations regarding changes in control of our ownership. rule1017 of the national association of securities dealers (nasd) generally provides, among other things, that finra approval must be obtained in connection with any transaction resulting in a change in our equity ownership that results in one person or entity directly or indirectly owning or controlling 25% or more of our equity capital. similarly, the occ imposes advance approval requirements for a change of control, and control is presumed to exist if a person acquires 10% or more of our common stock. these regulatory approval processes can result in delay, increased costs and/or impose additional transaction terms in connection with a proposed change of control, such as capital contributions to the regulated entity. as a result of these regulations, our future efforts to sell shares or raise additional capital may be delayed or prohibited.we are subject to various regulatory capital requirements, which, if not complied with, could result in the restriction of the ongoing conduct, growth, or even liquidation of parts of our business. the sec, finra, cftc, occ and nfa have extensive rules and regulations with respect to capital requirements. as a registered broker-dealer, lpl financial is subject to rule15c3-1 (uniform net capital rule) under the securities exchange act of 1934, as amended (the exchange act), and related sro requirements. the cftc and nfa also impose net capital requirements. the uniform net capital rule specifies minimum capital requirements that are intended to ensure the general soundness and liquidity of broker-dealers. because we are not a registered broker-dealer, we are not subject to the uniform net capital rule. however, our ability to withdraw capital from our broker-dealer subsidiaries could be restricted, which in turn could limit our ability to repay debt and redeem or purchase shares of our outstanding stock. a large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of business. failure to comply with erisa regulations could result in penalties against us. we are subject to erisa and sections4975(c)(1)(a), (b), (c)and (d)of the internal revenue code of 1986, as amended (the internal revenue code), and to regulations promulgated thereunder, insofar as we act as a fiduciary under erisa with respect to benefit plan clients or otherwise deal with benefit plan clients. erisa and applicable provisions of the internal revenue code impose duties on persons who are fiduciaries under erisa, prohibit specified transactions involving erisa plan clients (including, without limitation, employee benefit plans (as defined in section3(3) of erisa), individual retirement accounts and keogh plans) and impose monetary penalties for violations of these prohibitions. our failure to comply with these requirements could result in significant penalties against us that could have a material adverse effect on our business (or, in a worst case, severely limit the extent to which we could act as fiduciaries for any plans under erisa). risks related to our competitionwe operate in an intensely competitive industry, which could cause us to lose advisors and their assets, thereby reducing our revenues and net income. we are subject to competition in all aspects of our business, including competition for our advisors and their clients, from: asset management firms; commercial banks and thrift institutions; insurance companies; other clearing/custodial technology companiesand brokerage and investment banking firms. many of our competitors have substantially greater resources than we do and may offer a broader range of services, including financial products, across more markets. some operate in a different regulatory environment than we do which may give them certain competitive advantages in the services they offer. for example, certain of our competitors only provide clearing services and consequently would not have any supervision or oversight liability relating to actions of their financial advisors. we believe that competition within our industry will intensify as a result of consolidation and acquisition activity and because new competitors face few barriers to entry. if we fail to continue to attract highly qualified advisors or advisors licensed with us leave us to pursue other opportunities, or if current or potential clients of our advisors decide to use one of our competitors, we could face a significant decline in market share, commission and fee revenues and net income. if we are required to increase our payout of commissions and fees to our advisors in order to remain competitive, our net income could be significantly reduced.poor service or performance of the financial products that we offer or competitive pressures on pricing of such services or products may cause clients of our advisors to withdraw their assets on short notice. clients of our advisors control their assets under management with us. poor service or performance of the financial products that we offer or competitive pressures on pricing of such services or products may result in the loss of accounts. in addition, we must monitor the pricing of our services and financial products in relation to competitors and periodically may need to adjust commission and fee rates, interest rates on deposits and margin loans and other fee structures to remain competitive. competition from other financial services firms, such as reduced commissions to attract clients or trading volume or higher deposit rates to attract client cash balances, could adversely impact our business. the decrease in revenue that could result from such an event could have a material adverse effect on our business. we face competition in attracting and retaining key talent. our success and future growth depends upon our ability to attract and retain qualified employees. there is significant competition for qualified employees in the broker-dealer industry. we may not be able to retain our existing employees or fill new positions or vacancies created by expansion or turnover. the loss or unavailability of these individuals could have a material adverse effect on our business. moreover, our success depends upon the continued services of our key senior management personnel, including our executive officers and senior managers. the loss of one or more of our key senior management personnel, and the failure to recruit a suitable replacement or replacements, could have a material adverse effect on our business. risks related to our debtour indebtedness could adversely affect our financial health and may limit our ability to use debt to fund future capital needs. at september30, 2010, we had total indebtedness of $1.4billion. our level of indebtedness could increase our vulnerability to general adverse economic and industry conditions. it could also require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes. in addition, our level of indebtedness may limit our flexibility in planning for changes in our business and the industry in which we operate, place us at a competitive disadvantage compared to our competitors that have less debt and limit our ability to borrow additional funds. our ability to make scheduled payments on or to refinance indebtedness obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. in addition, as discussed above, we are limited in the amount of capital that we can draw from our broker-dealer subsidiaries. if our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. these alternative measures may not be successful or feasible. our third amended and restated credit agreement (senior secured credit agreement) restricts our ability to sell assets. even if we could consummate those sales, the proceeds that we realize from them may not be adequate to meet any debt service obligations then due. furthermore, if an event of default were to occur with respect to our senior secured credit agreement or other indebtedness, our creditors could, among other things, accelerate the maturity of our indebtedness. in addition, as a result of reduced operating performance or weaker than expected financial condition, rating agencies could downgrade our senior unsecured subordinated notes, which would adversely affect the value of shares of our common stock. our senior secured credit agreement permits us to incur additional indebtedness. although our senior secured credit agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. also, these restrictions do not prevent us from incurring obligations that do not constitute indebtedness as defined in our senior secured credit agreement. to the extent new debt or other obligations are added to our currently anticipated debt levels, the substantial indebtedness risks described above would increase. restrictions under certain of our indebtedness may prevent us from taking actions that we believe would be in the best interest of our business. certain of our indebtedness contain customary restrictions on our activities, including covenants that may restrict us from: incurring additional indebtedness or issuing disqualified stock or preferred stock; paying dividends on, redeeming or repurchasing our capital stock; making investments or acquisitions; creating liens; selling assets; restricting dividends or other payments to us; guaranteeing indebtedness; engaging in transactions with affiliatesand consolidating, merging or transferring all or substantially all of our assets. we are also required to meet specified financial ratios. these restrictions may prevent us from taking actions that we believe would be in the best interest of our business. our ability to comply with these restrictive covenants will depend on our future performance, which may be affected by events beyond our control. if we violate any of these covenants and are unable to obtain waivers, we would be in default under the applicable agreements and payment of the indebtedness could be accelerated. the acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default or cross-acceleration provisions. if our indebtedness is accelerated, we may not be able to repay that indebtedness or borrow sufficient funds to refinance it. even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. if our indebtedness is in default for any reason, our business could be materially and adversely affected. in addition, complying with these covenants may also cause us to take actions that are not favorable to holders of the common stock and may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.provisions of our senior secured credit agreement could discourage an acquisition of us by a third party. certain provisions of our senior secured credit agreement could make it more difficult or more expensive for a third party to acquire us, and any of our future debt agreements may contain similar provisions. upon the occurrence of certain transactions constituting a change of control, all indebtedness under our senior secured credit agreement may be accelerated and become due and payable. a potential acquirer may not have sufficient financial resources to purchase our outstanding indebtedness in connection with a change of control. risks related to our technologywe rely on technology in our business, and technology and execution failures could subject us to losses, litigation and regulatory actions. our business relies extensively on electronic data processing and communications systems. in addition to better serving our advisors and clients, the effective use of technology increases efficiency and enables firms like ours to reduce costs. our continued success will depend, in part, upon: our ability to successfully maintain and upgrade the capability of our systems; 20 our ability to address the needs of our advisors and their clients by using technology to provide products and services that satisfy their demandsand our ability to retain skilled information technology employees. failure of our systems, which could result from events beyond our control, or an inability to effectively upgrade those systems or implement new technology-driven products or services, could result in financial losses, liability to clients and damage to our reputation. our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. although we take protective measures and endeavor to modify them as circumstances warrant, the computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. if one or more of these events occur, this could jeopardize our own, our advisors or their clients or counterparties confidential and other information processed, stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our own, our advisors or their clients, our counterparties or third parties operations. we may be required to expend significant additional resources to modify our protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications, and we may be subject to litigation and financial losses that are either not insured or are not fully covered through any insurance we maintain.the securities settlement process exposes us to risks that may expose our advisors and us to adverse movements in price. lpl financial, one of our subsidiaries, provides clearing services and trade processing for our advisors and their clients and certain financial institutions. broker-dealers that clear their own trades are subject to substantially more regulatory requirements than brokers that outsource these functions to third-party providers. errors in performing clearing functions, including clerical, technological and other errors related to the handling of funds and securities held by us on behalf of clients, could lead to censures, fines or other sanctions imposed by applicable regulatory authorities as well as losses and liability in related lawsuits and proceedings brought by our advisors clients and others. any unsettled securities transactions or wrongly executed transactions may expose our advisors and us to adverse movements in the prices of such securities.our networks may be vulnerable to security risks. the secure transmission of confidential information over public networks is a critical element of our operations. as part of our normal operations, we maintain and transmit confidential information about clients of our advisors as well as proprietary information relating to our business operations. our application service provider systems maintain and process confidential data on behalf of advisors and their clients, some of which is critical to our advisors business operations. if our application service provider systems are disrupted or fail for any reason, or if our systems or facilities are infiltrated or damaged by unauthorized persons, our advisors could experience data loss, financial loss, harm to reputation and significant business interruption. if such a disruption or failure occurs, we may be exposed to unexpected liability, advisors may withdraw their assets, our reputation may be tarnished and there could be a material adverse effect on our business. our networks may be vulnerable to unauthorized access, computer viruses and other security problems in the future. we rely on our advisors to comply with our policies and procedures to safeguard confidential data. the failure of our advisors to comply with such policies and procedures could result in the loss or wrongful use of their clients confidential information or other sensitive information. in addition, even if we and our advisors comply with our policies and procedures, persons who circumvent security measures could wrongfully use our confidential information or clients 21 confidential information or cause interruptions or malfunctions in our operations. such loss or use could, among other things: seriously damage our reputation; allow competitors access to our proprietary business information; subject us to liability for a failure to safeguard client data; result in the termination of relationships with our advisors; subject us to regulatory sanctions or burdens, based on the authority of the sec and finra to enforce regulations regarding business continuity planningand require significant capital and operating expenditures to investigate and remediate the breach.failure to maintain technological capabilities, flaws in existing technology, difficulties in upgrading our technology platform or the introduction of a competitive platform could have a material adverse effect on our business. we depend on highly specialized and, in many cases, proprietary technology to support our business functions, including among others: securities trading and custody; portfolio management; customer service; accounting and internal financial processes and controlsand regulatory compliance and reporting. in addition, our continued success depends on our ability to effectively adopt new or adapt existing technologies to meet client, industry and regulatory demands. we might be required to make significant capital expenditures to maintain competitive technology. for example, we believe that our technology platform, particularly our branchnet system, is one of our competitive strengths, and our future success will depend in part on our ability to anticipate and adapt to technological advancements required to meet the changing demands of our advisors. the emergence of new industry standards and practices could render our existing systems obsolete or uncompetitive. any upgrades or expansions may require significant expenditures of funds and may also cause us to suffer system degradations, outages and failures. there cannot be any assurance that we will have sufficient funds to adequately update and expand our networks, nor can there be any assurance that any upgrade or expansion attempts will be successful and accepted by our current and prospective advisors. if our technology systems were to fail and we were unable to recover in a timely way, we would be unable to fulfill critical business functions, which could lead to a loss of advisors and could harm our reputation. a technological breakdown could also interfere with our ability to comply with financial reporting | -0.015595 | 14.61 | 1197.96 | 3646.167 | 469724460 | 3113.486 | 170 | False | 2010 |
| 3326 | NaN | 16.3 | NaN | NaN | AUSTIN | NaN | 0.021 | NaN | 13062.91 | False | AMEX | False | True | Other | Construction | Other | NaN | NaN | Wilson Holdings Inc | NaN | NaN | Capital Growth Financial LLC | 2525.09 | NaN | NaN | 1 | 1 | NaN | 3.25 | NaN | False | NaN | 0 | 3.001000 | 3.00100 | 3.001 | 3.001 | risk factors an investment in our common stock involves a high degree of risk and many uncertainties. you should carefully consider the specific factors listed below before purchaser our securities. if one or more of the possibilities described as risks below actually occur, our operating results and financial condition would likely suffer and the trading price of our common stock could fall, causing you to lose some or all of your investment in the shares of common stock you purchase. the following is a description of what we consider our key challenges and material risks. risks related to our businessour current operating business has a limited operating history and revenues. in october 2005, we acquired wilson family communities, inc., or wfc, which has a limited operating history. accordingly, our business is subject to substantial risks inherent in the commencement of a new business enterprise in an intensely competitive industry. the business of wfc was conducted, beginning in 2002, by athena equity partners-hays, l.p., or athena, to engage in land acquisition and development and, beginning in 2005, to provide homebuilder services. prior to its merger with wfc, athena did not generate significant revenues, and, through march 31, 2007, our company has generated revenues of only approximately $8.8 million and has incurred cumulative net losses of approximately $17.0 million. there can be no assurance that we will be able to successfully acquire, develop and/or market land, develop and market our homebuilder services, commence our homebuilding activities, generate revenues, or ever operate on a profitable basis. we currently have only one active homebuilder for our homebuilder services and are evaluating whether to continue providing services to homebuilders. any investment in our company should be considered a high-risk investment because the investor will be placing funds at risk in a company with unknown costs, expenses, competition, and other problems to which new ventures are often subject. investors should not invest in our company unless they can afford to lose their entire investment.we have incurred a significant amount of debt, but will require additional substantial capital to continue to pursue our operating strategy. we had approximately $4.4 million in cash and cash equivalents at march 31, 2007. we plan to commit several million dollars in cash to exercise option rights to purchase land, develop land and guarantee certain payments regarding the development of optioned land over the next year. we have secured lines of credit totaling approximately $25.5 million. approximately $1.6 million was drawn against these lines of credit as of march 31, 2007, which will be repaid as finished lots and completed homes are sold. approximately $328,000 of the notes payable relate to variable interest entities, or vies, that had drawn on the lines of credit, which we have guaranteed, to build homes that will be repaid as the completed homes are sold. we anticipate investing approximately $23 million for purchase of land, installment payments, options fees and development costs over the next twelve months. this amount includes costs for development of land, such as installation of water and wastewater infrastructure, streets and common areas. we intend to purchase or obtain options to purchase additional acreage for development and additional finished lots for sale. we have issued and sold an aggregate of $16.75 million in principal amount of convertible promissory notes since december 2005. these notes bear interest at a fixed rate of 5.0% per annum, with the principal amount of such notes convertible into shares of our common stock at the rate of one share per $2.00 of principal, which conversion rate is subject to proportionate adjustment for stock splits, stock dividends and recapitalizations as well as a ratchet adjustment which will apply if we sell shares of our common stock in the future at a price per share of less than $2.00, provided that such conversion rate may not be reduced below a rate of one share of common stock for each $1.00 of note principal. our growth plans will require substantial amounts of cash for earnest money deposits, land purchases, development costs and interest payments, and to provide financing or surety services to our homebuilder clients. until we begin to sell an adequate number of lots and services to cover our monthly operating expenses, 8 costs associated with our sales, marketing and general and administrative activities will deplete cash. our articles of incorporation contain no limits on the amount of indebtedness we may incur.we are seeking additional credit lines to finance land purchases and development costs. through march 31, 2007, we have closed on four major land development projects that used $15.7 million in cash to exercise land purchase options, develop and entitle land and acquire entitled acreage. we anticipate purchasing and committing to various agreements to purchase land that could have performance clauses requiring several million dollars in cash and borrowings. the majority of our expenditures in the past have been for inventory, consisting of land, land development and land options totaling over $31 million as of march 31, 2007. to secure additional inventory, we will be required to put up earnest money deposits, make cash down payments, acquire acreage tracts and pay for certain land development activities costing several million dollars. this amount includes the development of land, including costs for the installation of water, sewage, streets and common areas. we intend to continue our growth plan and expect to purchase or obtain options to purchase additional acreage for development and additional finished lots to provide ample supplies for our homebuilder customers. we intend to use debt and may utilize joint venture financing as well as cash generated from lot and land sales to finance these activities. in the normal course of business, we enter into various land purchase option agreements that require earnest money deposits. in order for us to start or continue the development process, we may incur development costs before we exercise an option agreement. we currently have approximately $451,000 in capitalized development costs, earnest money and deposits outstanding of which the entire amount would be forfeited and expensed if we were to cancel all of these agreements. should our financing efforts be insufficient to execute our business plan, we may be required to seek additional sources of capital, which may include partnering with one or more established operating companies that are interested in our emerging business or entering into joint venture arrangements for the development of certain of our properties. however, if we were required to resort to partnering or joint venture relationships as a means to raise needed capital or reduce our cost burden, we likely will be required to cede some control over our activities and negotiate our business plan with our business or joint venture partners.we are vulnerable to concentration risks because our initial operations have been limited to the central texas area. our real estate activities have to date been conducted almost entirely in the central texas region, which we define as encompassing the austin metropolitan statistical area, or austin msa, and the san antonio metropolitan statistical area, or san antonio msa. this geographic concentration, combined with a limited number of projects that we plan to pursue, make our operations more vulnerable to local economic downturns and adverse project-specific risks than those of larger, more diversified companies. the performance of the central texas economy will affect our sales and, consequently, the underlying values of our properties. for example, the economy in the austin msa is heavily influenced by conditions in the technology industries. during periods of weakness or instability in technology industries, we may experience reduced sales, particularly with respect to high-end properties, which can significantly affect our financial condition and results of operations. the san antonio msa economy is dependent on the service industry (including tourism), government/military and businesses specializing in international trade. to the extent there is a significant reduction in tourism or in staffing levels of military or other government employers in the san antonio msa, we would expect to see reduced sales of lower priced homes due to a likely reduction in lower paying tourism- and government-related jobs.fluctuations in market conditions may affect our ability to sell our land at expected prices, if at all, which could adversely affect our revenues, earnings and cash flows. we are subject to the potential for significant fluctuations in the market value of our land inventories. there is a lag between the time we acquire control of undeveloped land and the time that we can improve that 9 land for sale to home builders. this lag time varies from site to site as it is impossible to determine in advance the length of time it will take to obtain government approvals and permits. the risk of owning undeveloped land can be substantial as the market value of undeveloped land can fluctuate significantly as a result of changing economic and market conditions. inventory carrying costs can be significant and can result in losses in a poorly performing development or market. material write-downs of the estimated value of our land inventories could occur if market conditions deteriorate or if we purchase land at higher prices during stronger economic periods and the value of those land inventories subsequently declines during weaker economic periods. we could also be forced to sell land or lots for prices that generate lower profit than we anticipate, and may not be able to dispose of an investment in a timely manner when we find dispositions advantageous or necessary. furthermore, a decline in the market vale of our land inventories may give rise to a breach of financial covenants contained in our credit facilities, which could cause a default under one or more of those credit facilities.our operations are subject to an intensive regulatory approval process, including governmental and environmental regulation, which may delay, increase the cost of, prohibit or severely restrict our development projects and reduce our revenues and cash flows. we are subject to extensive and complex laws and regulations that affect the land development process. before we can develop a property, we must obtain a variety of approvals from local, state and federal governmental agencies with respect to such matters as zoning, density, parking, subdivision, site planning and environmental issues. certain of these approvals are discretionary by nature. because certain government agencies and special interest groups have in the past expressed concerns about development plans in or near the central texas region, our ability to develop these properties and realize future income from them could be delayed, reduced, made more expensive or prevented altogether. real estate development is subject to state and federal regulations as well as possible interruption or termination because of environmental considerations, including, without limitation, air and water quality and the protection of endangered species and their habitats. we are making and will continue to make expenditures and other accommodations with respect to our real estate development for the protection of the environment. emphasis on environmental matters may result in additional costs to us in the future or a reduction in the amount of acreage that we can use for development or sales activities.we may be subject to risks as a result of our entry into joint ventures. to the extent that we undertake joint ventures to develop properties or conduct our business, we may be liable for all obligations incurred by the joint venture, even though such obligations may not have been incurred by us, and our share of the potential profits from such joint venture may not be commensurate with our liability. moreover, we will be exposed to greater risks in joint ventures should our co-venturers financial condition become impaired during the term of the joint venture, as creditors will increasingly look to our company to support the operations and fund the obligations of the joint venture.our operations are subject to weather-related risks. our land development operations and the demand for our homebuilder services may be adversely affected from time to time by weather conditions that damage property. the central texas region is prone to tornados, hurricanes entering from the gulf of mexico, floods, hail storms, severe heat and droughts. we maintain only limited insurance coverage to protect the value of our assets against natural disasters. additionally, weather conditions can delay development and construction projects by weeks or months which could delay and decrease our anticipated revenues. to the extent we encounter significant weather-related delays, our business would suffer.the availability of water could delay or increase the cost of land development and adversely affect our future operating results. the availability of water is becoming an increasingly difficult issue in the central texas region and other areas of the southwestern united states. many jurisdictions are now requiring that builders provide detailed information regarding the source of water for any new community that they intend to develop. 10 similarly, the availability of treatment facilities for sanitary sewage is a growing concern. many urban areas have insufficient resources to meet the demand for waste-water and sanitary sewage treatment. to the extent we are unable to find satisfactory solutions to these issues with respect to future development projects, our operations could be adversely affected.we are subject to risks related to environmental damages. we may be required to undertake expensive and time-consuming clean-up or remediation efforts in the event that we encounter environmental hazards on the lots we own, even if we were not originally responsible for or aware of such hazards. in the event we are required to undertake any such remediation activities, our business could suffer.we are at risk of loss for loans or advances to our customers. to the extent we offer surety or financing to our homebuilder customers, we could suffer losses if the funds advanced are not used for their intended purposes and we are forced to exercise legal remedies or incur expenses to recoup our collateral. although we closely monitor the activities for which the money is intended, it is possible for the funds to be wasted or misappropriated. we do not believe we are required to obtain any license to provide these loans or advances, nor are we limited by our charter on the amount of surety or financing we can offer, but regulatory changes could require that we do so in the future.our president and chief executive officer is subject to a non-compete agreement that limits the activities in which we may engage until june 2007. clark n. wilson, our president and chief executive officer, served as the president and chief executive officer of clark wilson homes, inc., a subsidiary of capital pacific holdings, from 1992 to 2002. pursuant to an agreement that was executed in connection with the sale of clark wilson homes to j.m. peters company in 1994, mr.wilson agreed not to engage in the businesses of acquisition, ownership, development, construction or sale of dwelling units in certain portions of the united states in which we plan to do business, including the central texas region, as well as in any other county in the united states in which j.m. peters company conducts business. the stated term of this covenant not-to-compete is five years, expiring in june 2007, for certain enumerated counties in texas, including the counties in and around, austin, dallas, houston and san antonio, texas. the covenant not to compete relates to the business of building homes and not the purchase and sale of real estate as contemplated by us. it is our opinion that our current activities do not violate the terms of the covenant because we do not currently and we do not intend to engage in homebuilding activities until after the covenant terminates in june 2007.we are a small company and have a correspondingly small financial and accounting organization. being a public company may strain our resources, divert managements attention and affect our ability to attract and retain qualified directors. we are a small company with a finance and accounting organization that we believe is of appropriate size to support our current operations; however, the rigorous demands of being a public reporting company may lead to a determination that our finance and accounting group is undersized. as a public company, we are subject to the reporting requirements of the securities exchange act of 1934 and the sarbanes-oxley act of 2002. the requirements of these laws and the rules and regulations promulgated thereunder entail significant accounting, legal and financial compliance costs, and have made, and will continue to make, some activities more difficult, time consuming or costly and may place significant strain on our personnel, systems and resources. the securities exchange act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required. as a result, managements attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. 11 these rules and regulations also have made it more difficult and more expensive for us to maintain director and officer liability insurance, and in the future we may be required to accept reduced coverage or incur substantially higher costs to maintain such coverage. if we are unable to maintain adequate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, will be significantly curtailed.we depend on our key personnel to manage our business effectively. we believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial and sales and marketing personnel. in particular, due to the relatively early stage of our business, we believe that our future success is highly dependent on clark n. wilson, our chief executive officer and the founder of wfc, to provide the necessary leadership to execute our growth plans. although we intend to acquire a key-man life insurance policy for mr.wilson, the loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel, and in particular sales personnel, could impede our ability to expand our sales and marketing activities as desired, and negatively impact our profitability.we have borrowed money at floating interest rates and if interest rates were to significantly increase, our financial results could suffer. we have borrowed approximately $4.8 million at interest rates of prime plus 0.50% to 2.00% that adjust in relation to the prime rate. if the prime rate were to significantly increase, we will be required to pay additional amounts in interest under these notes and line of credit and our financial results could suffer.we are vulnerable to concentration risks because we intend to focus on the residential rather than commercial market. we intend to focus on residential rather than commercial properties. economic shifts affect residential and commercial property markets, and thus our business, in different ways. a developer with diversified projects in both sectors may be better able to survive a downturn in the residential market if the commercial market remains strong. our focus on the residential sector can make us more vulnerable than a diversified developer.our growth strategy to expand into new geographic areas poses risks. we may expand our business into new geographic areas outside of the central texas region. we will face additional risks if we expand our operations in geographic areas or climates in which we do not have experience, including: adjusting our land development methods to different geographies and climates; obtaining necessary entitlements and permits under unfamiliar regulatory regimes; attracting potential customers in a market in which we do not have significant experience; and the cost of hiring new employees and increased infrastructure costs. we may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on our revenues, earnings, cash flows and financial condition.if we are unable to generate sufficient cash from operations or secure additional borrowings, we may find it necessary to curtail our development activities. we anticipate that we will need at least $23 million to fund our acquisition and development expenditures for the next twelve months. our performance continues to be substantially dependent on future cash flows from real estate financing and sales and there can be no assurance that we will generate sufficient cash flow or otherwise obtain sufficient funds to meet the expected development plans for our current and 12 future properties. if we are unsuccessful in obtaining adequate loans or in generating positive cash flows, we could be forced to: abandon some of our development activities, including the development of sub-divisions and entitling of land for development; forfeit option fees and deposits; default on loans; violate covenants with our current lenders and convertible note holders thereby putting us in default; and possibly be forced to liquidate a substantial portion of our asset holdings at unfavorable prices.our results of operations and financial condition are greatly affected by the performance of the real estate industry. our real estate activities are subject to numerous factors beyond our control, including local real estate market conditions, substantial existing and potential competition, general national, regional and local economic conditions, fluctuations in interest rates and mortgage availability and changes in demographic and environmental conditions. real estate markets have historically been subject to strong periodic cycles driven by numerous factors beyond the control of market participants. real estate investments often cannot easily be converted into cash and market values may be adversely affected by these economic circumstances, market fundamentals, competition and demographic conditions. because of the effect these factors have on real estate values, it is difficult to predict with certainty the level of future sales or sales prices that will be realized for individual assets. our real estate operations are also dependent upon the availability and cost of mortgage financing for potential customers, to the extent they finance their purchases, and for buyers of the potential customers existing residences.risks related to investment in our securities there is currently a limited market for our common stock. we have limited trading volume which causes significant stock price fluctuation. any trading market that develops in our common stock may be highly illiquid and may not reflect the underlying value of our net assets or business prospects. our common stock has been traded on the otc bulletin board.we have been approved to have our common stock quoted on the american stock exchange beginning may 15, 2007. however, there is currently only a limited market for our common stock and there can be no assurance that an improved market will ever develop or be sustained. any trading market that does develop may be volatile, and significant competition to sell our common stock in any such trading market may exist, which could negatively affect the price of our common stock, including shares of our common stock issuable upon conversion of our outstanding convertible promissory notes. prior to this offering, we have a minimal number of shares that are freely tradable and therefore our stock price fluctuates significantly based on trades of very small volume. as a result, the value of our common stock may decrease. additionally, if a trading market does develop, such market may be highly illiquid, and our common stock may trade at a price that does not accurately reflect the underlying value of our net assets or business prospects. investors are cautioned not to rely on the possibility that an active trading market may develop or on the prices at which our stock may trade in any market that does develop in making an investment decision.our company is a holding company, and the obligations of our company are subordinate to those of our operating subsidiary. our company is a holding company with no material assets other than our equity interest in our wholly owned subsidiary, wilson family communities, or wfc. wfc conducts substantially all of our operations and directly owns substantially all of our assets. the holding company structure places any obligations of wilson holdings subordinate to those of our operating subsidiary, wfc. therefore, in the event of a liquidation, creditors of wfc would be repaid prior to any distribution to the stockholders of wilson holdings. after the repayment of all obligations incurred by wfc and the repayment of all obligations of wilson holdings, any remaining assets could then be distributed to wilson holdings as the holder of all shares of common stock of wfc and subsequently would be distributed among the holders of our common stock. our largest stockholder, who is also our president and chief executive officer, will continue to control our company. clark n. wilson, our president and chief executive officer, owns or controls approximately 75% of the issued and outstanding shares of our common stock. upon completion of this offering, mr.wilson will continue to own or control approximately 59% of the issued and outstanding shares of our common stock. this ownership position will provide mr.wilson with the voting power to significantly influence the election of all members of our board of directors and, thereby, to exert substantial control over all corporate actions and decisions for an indefinite period.we issued $16.75 million in convertible notes and if these notes are converted into shares of common stock, or if the warrants issued in conjunction with such notes are exercised, our stockholders would suffer substantial dilution. in december 2005 and september 2006, we issued convertible promissory notes which may be converted, at the election of the holders of the notes, into shares of our common stock at a conversion price of $2.00 per share. in conjunction with these note financings, we also issued warrants to the purchasers which have vested and to the placement agent evidencing the right to purchase an aggregate of 1,157,187 shares of our common stock at an exercise price of $2.00 per share. while the holders of these notes and warrants have not indicated to us that they plan to convert their notes into, or exercise their warrants for, shares of our common stock, in the event they elect to do so we would be required to issue up to 8,375,000 additional shares of our common stock in conversion of the notes and 1,157,187 shares of our common stock upon exercise of the warrants, which would be dilutive to our existing stockholders. each convertible note is convertible into shares of our common stock at the option of the holder. the conversion price is subject to adjustment for stock splits, reverse stock splits, recapitalizations and similar corporate actions. a ratchet adjustment in the conversion price, and the corresponding rate at which the convertible notes may be converted into shares of our common stock, also is triggered upon the issuance of certain equity securities or equity-linked securities with a conversion price, exercise price or share price of less than $2.00 per share, provided, that the conversion price cannot be lower than $1.00 per share.future sales or the potential for sale of a substantial number of shares of our common stock could cause the trading price of our common stock to decline and could impair our ability to raise capital through subsequent equity offerings. sales of a substantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could cause the market price of our stock to decline and could materially impair our ability to raise capital through the sale of additional equity securities. for example, the grant of a large number of stock options or other securities under an equity incentive plan or the sale of our equity securities in private placement transactions at a discount from market value could adversely affect the market price of our common stock.we have anti-takeover provisions that could discourage, delay or prevent our acquisition. provisions of our articles of incorporation and bylaws could have the effect of discouraging, delaying or preventing a merger or acquisition that a stockholder may consider favorable. our authorized but unissued shares of common stock are available for our board to issue without stockholder approval. we may use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. the existence of our authorized but unissued shares of common stock could render it more difficult or discourage an attempt to obtain control of us by means of a proxy context, tender offer, merger or other transaction. in the future, we may elect to amend our charter to provide for authorized but unissued shares of preferred stock that would be issuable at the discretion of the board of directors. we can amend and restate our charter by action of the board of directors and the written consent of a majority of stockholders. we may become subject to nevadas control share acquisition act (nevada revised statutes 78.378 -78.3793), which prohibits an acquirer, under certain circumstances, from voting shares of a corporations stock after crossing specific threshold ownership percentages, unless the acquirer obtains the approval of the issuing corporations stockholders. the first such threshold is the acquisition of at least one-fifth but less that one-third of the outstanding voting power. wilson holdings may become subject to nevadas control share acquisition 14 act if it has 200 or more stockholders of record at least 100 of whom are residents of the state of nevada and does business in the state of nevada directly or through an affiliated corporation. currently, we do not conduct business in the state of nevada directly or through an affiliated corporation. as a nevada corporation, we also are subject to nevadas combination with interested stockholders statute (nevada revised statutes 78.411 - 78.444) which prohibits an interested stockholder from entering into a combination with the corporation, unless certain conditions are met. an interested stockholder is a person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10 percent or more of the corporations voting stock. clark n. wilson, our president and chief executive officer, also owns approximately 75% of the issued and outstanding shares of our common stock and will own approximately 59% of our common stock after the offering. all of these factors may decrease the likelihood that we would be, or the perception that we can be, acquired, which may depress the market price of our common stock. | NaN | 21.69 | 1482.37 | NaN | 16250000 | NaN | 3699 | False | 2007 |
| 3327 | 1.0 | 104.0 | NaN | 282.227979 | FT LAUDERDALE | 8.0000 | NaN | 32.63 | 8937.36 | False | NYSE | False | False | Other | Business Services | Other | NaN | NaN | NationsRent Inc | 0.630254 | 1430000.0 | Bear Stearns & Co Inc | 1930.99 | 12.654 | NaN | 0 | 28 | NaN | 8.00 | NaN | False | NaN | 0 | 6.476714 | 8.75000 | 8.750 | 181.348 | RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. In addition to the other information contained in this Prospectus, prospective investors should consider the following factors carefully in evaluating an investment in the Common Stock offered hereby. This Prospectus contains "forward-looking statements" relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenue and other financial items that are based on the beliefs of, assumptions made by and information currently available to the Company's management. The words "expect," "estimate," "anticipate," "believe," "intend," "plan" and similar expressions and variations thereof are intended to identify forward-looking statements. The cautionary statements set forth in this "Risk Factors" section and elsewhere in this Prospectus identify important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements.LIMITED OPERATING HISTORY The Company was formed in August 1997 and commenced operations in September 1997 with its acquisition of Sam's Equipment Rental, Inc. and Gabriel Trailer Manufacturing Company, Inc. (collectively, "Sam's"). Accordingly, the Company has only a limited operating history upon which an evaluation of the Company, its growth strategy and its prospects can be based. The Company's prospects must be evaluated in light of the risks, expenses and difficulties frequently encountered by companies in the early stages of development. Although theCompany has experienced growth in revenue and net income recently, there can be no assurance that growth or profitability can or will be sustained or that the Company's strategy of building a network of nationally branded equipment rental locations will lead to growth or profitability. ACQUISITION AND INTEGRATION RISKS Since its inception in August 1997, the Company has acquired 16 equipment rental businesses operating 65 locations in nine states. The Company intends to continue this rapid growth by continuing to make acquisitions, opening new locations and converting acquired locations to the Company's format. There can be no assurance that the Company will be able to identify acquisition candidates or suitable new locations or obtain financing for acquisitions or internal expansion on satisfactory terms, or at all. In the event that suitable acquisition candidates are not identifiable or to the extent that acquisitions are prohibitively costly, the Company may be forced to alter its growth strategy. The Company's growth strategy presents the risks inherent in assessing the value, strengths and weaknesses of growth opportunities, in evaluating the costs and uncertain returns of expanding the operations of the Company, and in integrating acquisitions with existing operations. The Company expects that its growth strategy may affect short-term cash flow and net income as the Company increases the amount of its indebtedness and incurs expenses to open new locations, make acquisitions and expand its rental inventory. As a result, theCompany's revenue and operating results may fluctuate. There can be no assurance that the Company will successfully expand, that any acquired businesses will be successfully integrated into the Company's operations or that any expansion will result in profitability. The failure of the Company to successfully implement its growth strategy may have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the Common Stock. The Company's anticipated growth will place significant demands on theCompany's management and its operational, financial and marketing resources. In connection with acquisitions and the opening of new locations, the Company anticipates experiencing growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations. The Company believes this growth will increase the operating complexity of theCompany and the level of responsibility exercised by both existing and new management personnel. To manage this expected growth, the Company intends to invest further in its operating and financial systems and to continue to expand, train and manage its employee base. There can be no assurance that the Company will be able to attract and retain qualified management and employees or that the Company's current operating and financial systems and controls will be adequate as the Company grows or that any steps taken to improve such systems and controls will be sufficient. The failure of 10 12 the Company to successfully integrate and manage its growth may have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the Common Stock. There may be liabilities that the Company fails or is unable to discover in the course of performing due diligence investigations on each company or business it has acquired or seeks to acquire in the future, including liabilities arising from non-compliance with applicable federal, state or local environmental requirements by prior owners and for which the Company, as a successor owner, may be responsible. The Company seeks to minimize the risk by conducting such due diligence, including environmental reviews, as it deems appropriate under the circumstances, but there can be no assurance that reasonable due diligence efforts will result in the identification of all existing conditions or risks. The Company also generally seeks to obtain rights to indemnification from each seller of acquired businesses or properties, which indemnification obligation may be supported by deferring payment of a portion of the purchase price or other appropriate security. However, there can no assurance that such indemnification, even if obtained, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on the Company's business, financial condition, results of operations or prospects.DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH The Company's ability to remain competitive, sustain its growth and expand its operations through new locations and acquisitions largely depends on its access to capital. In addition, the Company must make ongoing capital expenditures to update and maintain the condition of its rental equipment inventory in order to provide its customers with high-quality equipment. To date, the Company has financed capital expenditures and acquisitions primarily through private equity, bank financing, vendor financing and the issuance of promissory notes. To implement its growth strategy and meet its capital needs, the Company plans to issue additional equity securities and incur additional indebtedness in the future. In addition, the Company may seek to increase its $265 million revolving credit facility (the "Credit Facility") from time to time after consummation of the Offering. The Company intends to use the net proceeds of the Offering to repay borrowings under the Credit Facility and may in the future issue additional equity or debt securities to repay additional outstanding amounts under the Credit Facility. Borrowings under the CreditFacility mature and must be repaid in full in July 2001. There can be no assurance that any of such increases or any additional capital, if and when required, will be available on terms acceptable to the Company, or at all. Failure by the Company to obtain sufficient additional capital in the future could force the Company to curtail its growth or delay capital expenditures, which could have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the CommonStock. The Company's ability to finance future acquisitions, new locations and internal growth is currently limited by the covenants contained in the Credit Facility, including a number of covenants that, among other things, restrict the ability of the Company to dispose of assets or merge, incur debt, pay dividends, repurchase or redeem capital stock, create liens, make non-rental equipment capital expenditures and make certain investments or acquisitions and otherwise restrict corporate activities. The Credit Facility also contains, among other covenants, requirements that the Company maintain specified financial ratios, including minimum cash flow levels and interest coverage. See "Management'sDiscussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Business -- Growth Strategy" and "Description of Certain Indebtedness." SUBSTANTIAL LEVERAGE The Company has a substantial amount of indebtedness. As of March 31, 1998, on a pro forma basis after giving effect to the Acquisitions, an additional equity contribution of $17.4 million from the Company's founders (the "Founders'Additional Contribution"), a $27.6 million private placement of shares of Common Stock (the "Private Placement"), certain borrowings under the Credit Facility, the Offering and the application of the estimated net proceeds therefrom, the Company would have had total indebtedness of approximately $191.3 million. 11 13 The degree to which the Company is leveraged could have important consequences to holders of the Common Stock including, but not limited to, the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes may be limited; (ii) a substantial portion of theCompany's cash flow from operations will be dedicated to the payment of the principal of, and interest on, its indebtedness; (iii) the agreements governing the Company's long-term indebtedness will contain certain restrictive financial and operating covenants that could limit the Company's ability to compete and expand; and (iv) the Company's substantial leverage may make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions. See "Capitalization," "Management's Discussion and Analysis ofFinancial Condition and Results of Operations -- Liquidity and Capital Resources," "Description of Certain Indebtedness" and the Consolidated Financial Statements included elsewhere in this Prospectus. COMPETITION The equipment rental industry is highly competitive. The Company's competitors include large national rental companies, equipment manufacturers, regional corporations, smaller independent businesses, and equipment vendors and dealers who both sell and rent equipment to customers. Some of the Company's competitors have greater financial resources, are more geographically diverse, and have greater name recognition than the Company. There can be no assurance that the Company will not encounter increased competition from existing competitors or new market entrants, such as equipment manufacturers, that may be significantly larger and have greater financial and marketing resources than theCompany. If existing or future competitors reduce prices to gain or retain market share and the Company must also reduce prices to remain competitive, it could have a material adverse effect on the Company's business, financial condition, results of operations or prospects. Additionally, existing or future competitors may seek to compete with the Company for acquisition candidates or new locations, which may have the effect of increasing acquisition prices and reducing the number of suitable acquisition candidates or expansion locations which could have a material adverse effect on the Company's growth strategy, its business, financial condition, results of operations or prospects or the market price of the Common Stock. See "Business -- Competition."SEASONALITY AND QUARTERLY FLUCTUATIONS IN REVENUE AND OPERATING RESULTS Many of the Company's current locations are in the Midwest region of the United States. During the winter months of December through March, the Company experiences a slowdown in rentals to construction customers as a result of adverse weather conditions. In addition, the Company's revenue and operating results have varied throughout the year and are expected to continue to fluctuate in the future due to a number of factors, including (i) general economic conditions in the Company's markets, (ii) the timing of acquisitions and new location openings and related costs, (iii) the effectiveness of integrating acquired businesses and new locations, (iv) rental patterns of theCompany's customers and (v) price changes in response to competitive factors. The Company incurs various costs in establishing or integrating newly acquired or opened locations, and the profitability of a new location is generally expected to be lower in the initial months of operation. LIABILITY AND INSURANCE The Company's business exposes it to possible claims for personal injury or death resulting from the use of equipment rented or sold by the Company and from injuries caused in motor vehicle accidents in which Company delivery and service personnel are involved. The Company carries comprehensive insurance subject to deductibles at levels it believes are sufficient to cover existing and future claims. Although the Company has not experienced any material losses that were not covered by insurance, there can be no assurance that existing or future claims will not exceed the level of the Company's insurance or that such insurance will continue to be available on economically reasonable terms, or at all. 12 14ENVIRONMENTAL AND SAFETY REGULATION The Company's equipment, facilities and operations are subject to certain federal, state and local laws and regulations relating to environmental protection and occupational health and safety, including those governing wastewater discharges, the use, treatment, storage and disposal of solid and hazardous wastes and materials, air quality and the remediation of contamination associated with the release of hazardous substances. Certain of the Company's existing and former locations use and have used, substances, and currently generate or have generated or disposed of wastes, which are or may be considered hazardous or otherwise are subject to applicable environmental requirements. In particular, the Company stores and dispenses, or has in the past stored and dispensed, petroleum products from aboveground storage tanks and, in certain cases, underground storage tanks at its locations. The Company also uses hazardous materials, including solvents, to clean and maintain equipment, and generates and disposes of solid and hazardous wastes, including batteries, used motor oil, radiator fluid and solvents. In connection with such activities, theCompany has incurred minimal capital expenditures and other compliance costs which are expensed on a current basis and which, to date, have not been material to the Company's financial condition. Based on currently available information, the Company believes that the possibility is remote that it will have to incur material capital expenditures or other material compliance or remediation costs for environmental and safety matters in the foreseeable future. There can be no assurance, however, that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future, or that the Company will not identify adverse environmental conditions that are not currently known to the Company. Such future changes or interpretations, or the identification of such adverse environmental conditions, could result in additional environmental compliance or remediation costs not currently anticipated by the Company, which could have a material adverse effect on theCompany's business, financial condition, results of operations or prospects or the market price of the Common Stock. See "Business -- Environmental and Safety Regulation." DEPENDENCE ON EXECUTIVE OFFICERS AND DIRECTORS The Company's future success depends to a significant extent on retaining the services of certain executive officers and directors. The Company does not maintain key man insurance. The loss of the services of key employees or directors (whether such loss is through resignation or other causes) or the inability to attract additional qualified personnel could have a material adverse effect on the Company's business, financial condition, results of operations or prospects or the market price of the Common Stock.SIGNIFICANT STOCKHOLDERS Following the Offering, the executive officers and directors of the Company, including H. Wayne Huizenga, will own approximately 37.8% of the outstanding Common Stock (36.2% if the Underwriters' over-allotment option is exercised in full). In addition, H. Family Investments, Inc., a Florida corporation controlled by H. Wayne Huizenga, Jr., Mr. Huizenga's son, will own approximately 27.8% of the outstanding Common Stock (26.6% if the Underwriter's over-allotment option is exercised in full). Additionally, the HuizengaInvestors are expected to purchase in the Offering an aggregate of 3,125,000 shares of Common Stock, which will represent approximately 7.2% of the outstanding Common Stock (6.9% if the Underwriters' over-allotment option is exercised in full). As a result, the executive officers and directors of the Company will, together with H. Family Investments, Inc. and the HuizengaInvestors, be able to exercise a controlling influence over the outcome of matters submitted to the Company's stockholders for approval, including the election of directors. SHARES ELIGIBLE FOR FUTURE SALE Immediately following the consummation of the Offering, the Company will have 43,118,694 shares of Common Stock outstanding (45,068,694 shares if theUnderwriters' over-allotment option is exercised in full), including 30,118,694 outstanding shares of Common Stock presently beneficially owned by existing stockholders. The 13,000,000 shares of Common Stock to be sold pursuant to the Offering (14,950,000 shares if the Underwriters' over-allotment option is exercised in full) will be eligible for sale without restriction under theSecurities Act in the public market after the consummation of the Offering by persons other than affiliates 13 15 of the Company. Sales of shares by "affiliates" of the Company, as the term is defined in Rule 144 under the Securities Act ("Affiliates"), will be subject to Rule 144. The Company and the officers, directors and certain security holders of the Company, who will beneficially own in the aggregate 30,118,694 outstanding shares and securities convertible into or exercisable for 6,223,750 shares of Common Stock immediately prior to the consummation of the Offering, have agreed with the Underwriters (the "Lock-up Agreements") not to offer, sell or otherwise dispose of any shares of Common Stock or any security convertible into, exercisable for or exchangeable for shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent ofBear, Stearns & Co. Inc., except that (i) stockholders may make transfers as gifts if the donee agrees to be bound by a Lock-up Agreement, (ii) certain security holders will be permitted to pledge or margin their shares in a bona fide loan transaction with a third party lender, (iii) the Company may at any time and from time to time issue shares of Common Stock to third parties as consideration for the Company's acquisition from such third parties of equipment rental businesses and (iv) the Company may issue options pursuant to the 1998Stock Option Plan and shares of Common Stock upon the exercise of certain options granted to non-employee directors. The Company may issue shares of Common Stock in connection with acquisitions prior to the expiration of the 180-day lock-up period. The Company is not aware of any officer, director or other security holder that plans to offer or sell any shares of Common Stock prior to the expiration of the 180-day lock-up period. Following the expiration or waiver of the foregoing restrictions on dispositions and any applicable holding periods under Rule 144, 30,118,694 outstanding shares of Common Stock owned by existing stockholders will be available for sale in the public market pursuant to Rule 144 (including the volume and other limitations set forth therein). In connection with the PrivatePlacement, the Company agreed to use its reasonable efforts following consummation of the Offering to register for resale shares of Common Stock issued in the Private Placement. In addition, in connection with certain of the Acquisitions, the Company has agreed to register for resale the shares of Common Stock issuable upon exercise of certain warrants and upon conversion of certain convertible promissory notes. The Company has filed a registration statement to register for resale on a continuous basis from time to time, subject to theLock-up Agreements, 36,342,444 shares of Common Stock, 30,118,694 shares of which are held by the Company's existing stockholders and 6,223,750 shares of which are issuable upon exercise or conversion of outstanding warrants and convertible promissory notes. The Company caused this registration statement to become effective prior to the consummation of the Offering and intends to maintain its continuous effectiveness, including through filing post-effective amendments, indefinitely. The purpose of this resale registration statement is to provide liquidity to the selling stockholders named therein, some of whom will have the ability to pledge or margin their shares of Common Stock in connection with a bona fide loan transaction with a third party lender. The shares of Common Stock covered by this resale registration statement are freely tradeable subject to the Lock-up Agreements, which prohibit the selling stockholders from selling or otherwise disposing of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Bear, Stearns & Co. Inc. In addition, the Company intends to register on a registration statement on Form S-8 shares of Common Stock reserved for issuance upon exercise of options that may be granted to certain employees and non-employee directors under the 1998 Stock Option Plan and otherwise. TheCompany may also from time to time file registration statements covering the issuance and/or resale of shares of Common Stock which may be issued in potential future acquisitions. See "Management -- Stock Option Plan," "Description of Certain Indebtedness -- Promissory Notes" and "Description of Capital Stock -- Warrants and Options." No prediction can be made as to the effect, if any, that market sales of shares held by the Company's existing stockholders or future stockholders, or the availability of such shares for future sales, or market sales of shares sold in the Offering pursuant to this Prospectus or the availability of such shares for future sales, will have on the market price of the Common Stock from time to time. Sales of significant amounts of Common Stock in the public market could materially adversely affect the market price of the Common Stock or could materially impair the Company's future ability to realize capital through an offering of equity securities. See "Shares Eligible for Future Sale." 14 | 0.011762 | 30.15 | 1140.80 | 1075.812 | 104000000 | 236.398 | 2720 | False | 1998 |
| 3328 | 4.0 | 130.0 | 3000.0 | 99.401897 | SANTA CLARA | 17.3125 | 0.887 | 98.80 | 10609.55 | False | NASDQ | True | False | Healthcare, Medical Equipment, and Drugs | Medical Equipment | Healthcare, Medical Equipment, and Drugs | 152749.9 | 130000000.0 | Align Technology Inc | 0.012375 | 1800000.0 | Deutsche Banc Alex Brown | 2640.57 | -97.474 | 22.0 | 2 | 23 | 11.0 | 13.00 | 0.413043 | False | 152749.9 | 1 | 6.044304 | 9.00100 | 9.001 | 139.019 | RISK FACTORS Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect usIf any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment. Risks Related to Our Business Since we have a history of losses and negative cash flows, and we expect our operating expenses to continue to increase, we may not achieve or maintain profitability in the futureWe have incurred significant operating losses and have not achieved profitability. We have incurred net losses of $73.2 million for the period from our inception in April 1997 through September 30, 2000, including a net loss of $15.4 million in 1999 and $53.3 million for the nine months ended September 30, 2000. We incurred negative cash flows of $11.6 million from operating activities in 1999 and $31.2 million for the nine months ended September 30, 2000. From inception through July 2000, we have spent significant funds in organizational and start-up activities, to recruit key managers and employees, to develop the Invisalign System and to develop our manufacturing and customer support resources. We have also spent significant funds on clinical trials and training programs to train orthodontists in the use of the Invisalign System. We expect to have net losses and negative operating cash flows for at least the next 18 monthsWe intend to increase our operating expenses as we continue to: . scale our manufacturing operations; . develop new software and increase the automation of our manufacturing processes; . execute our national direct to consumer marketing campaign; . increase the size of our sales force and orthodontist training staff; . undertake quality assurance and improvement initiatives; and . increase our general and administrative functions to support our growing operationsAs a result, we will need to increase our revenue significantly, while controlling our expenses, to achieve profitability. It is possible that we will not achieve profitability, and even if we do achieve profitability, we may not sustain or increase profitability in the future. We have a limited operating history and expect our future financial results to fluctuate significantly, which may cause our stock price to declineWe were incorporated in April 1997 and have only recently begun selling our Invisalign System in commercial quantities. Thus, we have a limited operating history which makes an evaluation of our future prospects and your investment in our stock difficult. In addition, we expect our future quarterly and annual operating results to fluctuate as we increase our commercial sales. These fluctuations could cause our stock price to decline. Some of the factors that could cause our operating results to fluctuate include: . changes in the timing of product orders; . unanticipated delays in production caused by insufficient capacity or in the introduction of new production processes; 5 . inaccurate forecasting of revenue, production and other operating costs; and . the development and marketing of directly competitive products by potential competitorsTo respond to these and other factors, we may need to make business decisions that could adversely affect our operating results. Most of our expenses, such as employee compensation and lease payment obligations, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if our revenue for a particular period fall below our expectations, we may be unable to adjust spending quickly enough to offset any unexpected shortfall in revenue growth or any decrease in revenue levelsDue to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of our future performance. We have limited product offerings, and if demand for our Invisalign System declines or fails to develop as we expect, our revenue will declineWe derive a substantial portion of our revenue from the sale of our Invisalign System. For the nine-month period ended September 30, 2000, we derived 71% of our revenue from the sale of our Invisalign System. We expect that revenue from the sale of our Invisalign System will continue to account for a substantial portion of our total revenue. Continued and widespread market acceptance of our System is critical to our future success. The Invisalign System may not achieve market acceptance at the rate at which we expect, or at all, which could reduce our revenue. If orthodontists do not adopt our Invisalign System in sufficient numbers or as rapidly as we anticipate, our operating results will be harmedAs of November 30, 2000, approximately 2,000 of the 5,300 orthodontists we had trained had submitted one or more cases to us. Our success depends upon increasing acceptance by orthodontists and dentists of the Invisalign System. The Invisalign System requires orthodontists and their staff to undergo special training and learn to interact with patients in new ways and to interact with us as a supplier. In addition, because our Invisalign System has only been in clinical testing since July 1997 and commercially available since July 1999, orthodontists may be reluctant to adopt it until more historical clinical results are available. Also, increasing adoption by orthodontists will depend on factors such as the capability, safety, efficacy, ease of use, price, quality and reliability of our products and our provision of effective sales support, training and service. In the future, unanticipated poor clinical performance of the Invisalign System could result in significant adverse publicity and consequently in reduced acceptance by orthodontists. If our Invisalign System does not achieve growing acceptance in the orthodontic and dental communities, our operating results will be harmed. If consumers do not adopt our Invisalign System in sufficient numbers or as rapidly as we anticipate, our operating results will be harmedOur Invisalign System represents a significant change from traditional orthodontic treatment, and patients may be reluctant to accept it or may not find it preferable to conventional treatment. In addition, patients may not comply with recommended treatment 6 guidelines which could compromise the effectiveness of their treatment. While we have generally received positive feedback from both orthodontists and patients regarding our Invisalign System as both an alternative to braces and as a clinical method for treatment of malocclusion, our success will depend upon the rapid acceptance of our System by the substantially larger number of potential patients to which we are now actively marketing. We have had a limited number of complaints from patients and prospective patients generally related to shipping delays and minor manufacturing irregularities. Market acceptance will depend in part upon the recommendations of dentists and orthodontists, as well as other factors including effectiveness, safety, reliability, improved treatment aesthetics and greater comfort and hygiene compared to conventional orthodontic products. Furthermore, consumers may not respond to our direct marketing campaigns or we may be unsuccessful in reaching our target audience. If consumers prove unwilling to adopt our Invisalign System as rapidly or in the numbers that we anticipate, our operating results will be harmed. Our success depends in part on our proprietary technology and if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmedOur success will depend in part on our ability to maintain existing intellectual property and to obtain and maintain further intellectual property protection for our products, both in the U.S. and in other countries. Our inability to do so could harm our competitive position. We have one issued U.S. patent and 46 pending U.S. patent applications. We have two foreign-issued patents and 111 pending foreign patent applications. We intend to rely on our portfolio of issued and pending patent applications in the U.S. and in other countries to protect a large part of our intellectual property and our competitive position. However, our currently pending or future patent filings may not issue as patents. Additionally, any patents issued to us may be challenged, invalidated, held unenforceable, circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition, protection afforded by foreign patents may be more limited than that provided under U.S. patents and intellectual property lawsWe also rely on protection of copyrights, trade secrets, know-how and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us. However, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information and adequate remedies may not exist if unauthorized use or disclosure were to occur. Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. In particular, a failure of our proprietary rights might allow competitors to copy our technology, which could adversely affect pricing and market share. If we infringe the patents or proprietary rights of other parties, our ability to grow our business will be severely limitedExtensive litigation over patents and other intellectual property rights is common in the medical device industry. We have been sued for infringement of another party's patent in the past and, while that action has been dismissed, we may be the subject of patent or other litigation in the future In January 2000, Ormco Corporation filed suit against us asserting an infringement of U.S. Patent Nos. 5,447,432 and 5,683,243. The complaint sought unspecified monetary damages and equitable relief. The complaint alleged that the Invisalign System infringed certain claims of the two patents relating to computer modeling of an ideal dentition and the production of 7 orthodontic appliances based upon the ideal dentition. The suit has been dismissed but can be recommenced under certain circumstances. See "Business-- Legal Proceedings." If the Ormco suit were recommenced and if Ormco were to prevail, we would have to seek a license from Ormco, which license might not be available on commercially reasonable terms or at all. In that event, we could be subject to damages or an injunction which could materially adversely affect our businessFrom time to time, we have received and may again receive letters from third parties drawing our attention to their patent rights. While we do not believe that we infringe any valid and enforceable rights which have been brought to our attention, there may be other more pertinent rights of which we are presently unaware. The defense and prosecution of intellectual property suits, interference proceedings and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination in a patent suit by Ormco or in any other litigation or interference proceeding to which we may become a party could subject us to significant liabilities. An adverse determination of this nature could also put our patents at risk of being invalidated or interpreted narrowly or require us to seek licenses from third parties. Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially adversely affected. We have limited experience in manufacturing our products and if we encounter manufacturing problems or delays, our ability to generate revenue will be limitedWe have manufactured a limited number of our products to date. Our manufacturing processes rely on complex three-dimensional scanning, geometrical manipulation and modeling technologies that have historically not been used on the scale we require. Each item that we manufacture is geometrically unique and we have not manufactured our products in the commercial volumes which will be required to make us profitable. Accordingly, we may be unable to establish or maintain reliable, high-volume manufacturing capacity. Even if this capacity can be established and maintained, the cost of doing so may increase the cost of our products. We may encounter difficulties in scaling up production to meet demand, including: . problems involving production yields; . shortages of key manufacturing equipment; . shortages of qualified personnel, in particular dental and orthodontic personnel; . failure to develop new software processes; and . compliance with applicable Quality System regulations enforced by the Food and Drug Administration, or FDAOur manufacturing process is complex. Since all our products are designed for individual patients, we manufacture our products to fill purchase orders rather than maintaining inventories of assembled products. If demand for our products exceeds our manufacturing capacity, we could develop a substantial backlog of customer orders. If we are unable to establish and maintain larger- scale manufacturing capabilities, our ability to generate revenue will be limited and our reputation in the marketplace would be damaged. We currently rely on third parties to provide key inputs to our manufacturing process, and if our access to these inputs is diminished, our business may be harmedWe currently outsource key portions of our manufacturing process. We rely on a third party manufacturer in Mexico to fabricate Aligners and to ship the completed product to customers. In addition, third party rapid prototyping bureaus fabricate some molds from which 8 the Aligners are formed. As a result, if any of our third party manufacturers fail to deliver their components or if we lose their services, we may be unable to deliver our products in a timely manner and our business may be harmed. Finding substitute manufacturers may be expensive, time-consuming or impossible. Although we are in the process of developing the capability to fabricate all molds and Aligners internally, we may not be successful and may continue to rely on outsourcing in the futureIn addition, we are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials. We maintain single supply relationships for many of these machines and materials technologies. Our rapid growth may exceed the capacity of these manufacturers to produce the needed equipment and materials in sufficient quantities to support our growth. In the event of delivery delays or shortages of these items, our business and growth prospects may be harmed. We are dependent on our international manufacturing operations, which exposes us to foreign operational and political risks that may harm our businessTwo of our key production steps are performed in manufacturing operations located outside the U.S. We currently rely on our facilities in Pakistan to create electronic treatment plans with the assistance of sophisticated software. We employ approximately 650 people in Lahore, Pakistan in this effort. We anticipate that we will need to expand our personnel and facilities in Pakistan in order to scale our manufacturing operations. In addition, we rely on third party manufacturers in Mexico to fabricate Aligners and to ship the completed product to customers. Our reliance on international operations exposes us to risks and uncertainties, including: . difficulties in staffing and managing international operations; . controlling quality of manufacture; . political, social and economic instability; . interruptions and limitations in telecommunication services; . product or material transportation delays or disruption; . trade restrictions and changes in tariffs; . import and export license requirements and restrictions; . fluctuations in currency exchange rates; and . potential adverse tax consequencesIf any of these risks materialize, our operating results may be harmed. We are growing rapidly, and our failure to manage this growth could harm our business We have experienced significant growth in recent periods. Our headcount increased from 50 employees as of June 30, 1999 to approximately 1,080 employees as of November 30, 2000. In mid-2000, we approved major expansions to our existing facilities and the building of new facilities. We expect that our growth will place significant demands on our management and other resources and will require us to continue to develop and improve our operational, financial and other internal controls both in the U.S. and internationally. In particular, continued growth increases the challenges involved in a number of areas, including: recruiting and retaining sufficient skilled personnel, providing adequate training and supervision to maintain our high quality standards, and preserving our culture and values. Our inability to manage this growth effectively would harm our business. 9 If we lose our key personnel or are unable to attract and retain key personnel, we may be unable to pursue business opportunities or develop our productsWe are highly dependent on the key employees in our clinical engineering and management teams. The loss of the services of those individuals may significantly delay or prevent the achievement of our product development and other business objectives and could harm our business. Our future success will also depend on our ability to identify, recruit, train and retain additional qualified personnel. There is currently a shortage of skilled clinical, engineering and management personnel and intense competition for these personnel, especially in Silicon Valley where our headquarters is located. In addition, few orthodontists are accustomed to working in a manufacturing environment since they are generally trained to work in private practices, universities and other research institutions. Thus, we may be unable to attract and retain personnel with the advanced qualifications necessary for the further development of our business. Furthermore, we may not be successful in retaining our key personnel or their services. We experience competition from manufacturers of traditional braces and expect aggressive competition in the futureWe are not aware of any company that is marketing or developing a system directly comparable to our Invisalign System. However, manufacturers of traditional braces, such as 3M Company, Sybron International Corporation and Dentsply International, Inc. have substantially greater financial resources and manufacturing and marketing experience than we do and may, in the future, attempt to develop an orthodontic system similar to ours. Large consumer products companies may also enter the orthodontic supply market. Furthermore, we may face competition in the future from new companies that may introduce new technologies. We may be unable to compete with these competitors and one or more of these competitors may render our technology obsolete or economically unattractive. If we are unable to compete effectively with existing products or respond effectively to any products developed by our competitors, our business will be harmed. Complying with the Food and Drug Administration and other regulations is an expensive and time-consuming process, and any failure to comply could result in substantial penaltiesOur products are medical devices and subject to extensive regulation in the U.S. and internationally. FDA regulations are wide ranging and govern, among other things: . product design, development, manufacture and testing; . product labeling; . product storage; . premarket clearance or approval; . advertising and promotion; and . product sales and distributionNoncompliance with applicable regulatory requirements can result in enforcement action which may include recalling products, ceasing product marketing, and paying significant fines and penalties, which could limit product sales, delay product shipment and adversely affect our profitability In the U.S. we must comply with facility registration and product listing requirements of the FDA and adhere to applicable Quality System regulations. The FDA enforces its Quality 10 System regulations through periodic unannounced inspections, which we have yet to undergo. If we or any third party manufacturer of our products do not conform to applicable Quality System regulations, we may be required to find alternative manufacturers, which could be a long and costly processBefore we can sell a new medical device in the U.S., we must obtain FDA clearance or approval, which can be a lengthy and time-consuming process. Even though the devices we market have obtained the necessary clearances from the FDA through the premarket notification provisions of Section 510(k) of the federal Food, Drug, and Cosmetic Act, we may be unable to maintain the necessary clearances in the future. Furthermore, we may be unable to obtain the necessary clearances for new devices that we market in the future. Please see "Business--Government Regulation" for a more detailed discussion of the regulations that govern our industry. Extensive and changing government regulation of the healthcare industry may be expensive to comply with and exposes us to the risk of substantial government penaltiesIn addition to medical device laws and regulations, numerous state and federal healthcare-related laws regulate our business, covering areas such as: . storage, transmission and disclosure of medical information and healthcare records; . prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods; and . the marketing and advertising of our productsComplying with these laws and regulations could be expensive and time- consuming, and could increase our costs or reduce or eliminate certain of our activities or our revenues. See "Business--Government Regulation." We face risks related to our international operations, including the need to obtain necessary foreign regulatory clearance or approvals Sales of our products outside the U.S. are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain clearances or approvals required by other countries may be longer than that required for FDA clearance or approval, and requirements for such approvals may differ from FDA requirements. We may be unable to obtain regulatory approvals in other countries. We may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals. If we experience delays in receipt of approvals to market our products outside of the U.S., or if we fail to receive these approvals, we may be unable to market our products or enhancements in international markets in a timely manner, if at all. Our business exposes us to risks of product liability claims, and we may incur substantial expenses if we are sued for product liabilityMedical devices involve an inherent risk of product liability claims and associated adverse publicity. We may be held liable if any product we develop or any product that uses or incorporates any of our technologies causes injury or is otherwise found unsuitable. Although we intend to continue to maintain product liability insurance, adequate insurance may not be available on acceptable terms and may not provide adequate coverage against potential liabilities. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs. These costs would have the effect of increasing our expenses and could harm our business. 11 We may be unable to raise additional capital if it should be necessary, which could harm our ability to competeWe expect to expend significant capital to establish a national brand, build manufacturing infrastructure and develop both product and process technology. These initiatives may require us to raise additional capital over the next few years. We believe that the proceeds from this offering and the capital that we have already raised should be sufficient to fund our operations for at least the next 12 months. However, we may consume available resources more rapidly than anticipated and we may not be able to raise additional funds when needed, or on acceptable terms. Risks Related to this Offering The market price for our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering priceBefore this offering, there has not been a public market for our common stock. An active trading market for our common stock may not develop following this offering. You may not be able to sell your shares quickly or at the market price if trading in our stock is not active. Further, the market price of our common stock may decline below the price you paid for your shares. The initial public offering price for the shares was determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. Please see "Underwriting" for more information regarding our arrangement with the underwriters and the factors considered in setting the initial public offering priceThe trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: . quarterly variations in our results of operations; . changes in recommendations by the investment community or in their estimates of our revenues or operating results; . speculation in the press or investment community; . strategic actions by our competitors, such as product announcements or acquisitions; and . general market conditionsIn addition, the stock market in general, and the market for technology and medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated to or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performanceIn the past, following periods of volatility in the market price of a company's securities, class action litigation has often been brought against the company. If a securities class action suit is filed against us, we would incur substantial legal fees and our management's attention and resources would be diverted from operating our business in order to respond to the litigation. The large number of shares eligible for public sale after this offering could cause our stock price to declineThe market price of our stock could decline as a result of sales by our existing stockholders of a large number of shares of our stock in the market after this offering or the 12 perception that these sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriateAfter this offering, we will have 45,616,402 shares of common stock outstanding. All of our officers and directors and substantially all of our existing stockholders have entered into lock-up agreements providing that they will not sell any of our common stock until 180 days from the date of this prospectus, without the prior written consent of Deutsche Banc Alex. Brown Inc. Deutsche Banc Alex. Brown Inc. may release the shares subject to the lock-up agreements in whole or in part at any time without prior public notice. However, Deutsche Banc Alex. Brown Inc. has no current plans to effect such a release. Please see "Shares Eligible for Future Sale" for a description of sales that may occur in the future. Our management has broad discretion in using the proceeds from this offering, which might not be used in ways that improve our operating results or increase our market valueOur management will have broad discretion as to how the net proceeds of this offering will be used, including uses which may not improve our operating results or increase our market value. Investors will rely on the judgment of management regarding the application of the proceeds of this offering. Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us more difficultProvisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions: . prevent stockholders from taking action by written consent; . limit the persons who may call special meetings of stockholders; . authorize the issuance of preferred stock in one or more series; and . require advance notice for stockholder proposals and director nominationsIn addition, Section 203 of the Delaware General Corporation Law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. Please see "Description of Capital Stock--Preferred Stock" and "Description of Capital Stock--Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law" for a more detailed discussion of these anti-takeover provisions. Concentrations of ownership and agreements among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate transactionsThe interest of management could conflict with the interest of our other stockholders. Upon completion of this offering, our executive officers, directors and principal stockholders will beneficially own, in total, approximately 62% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change of control of Align, which in turn could reduce the market price of our stock. 13 New investors in our common stock will experience immediate and substantial dilutionThe offering price of our common stock will be substantially higher than the net tangible book value per share of our existing capital stock. As a result, if you purchase common stock in this offering, you will incur immediate and substantial dilution of $8.52 in net tangible book value per share of common stock, based on the public offering price of $13.00 per share. You will also experience additional dilution upon the exercise of outstanding stock options and warrants. Please see "Dilution" for a more detailed discussion of the dilution new investors will incur in this offering. 14 | -0.824528 | 21.92 | 1326.82 | 118.218 | 130000000 | 46.384 | 5 | True | 2001 |
| 3329 | 4.0 | 37.3 | 5000.0 | 89.367970 | REDWOOD CITY | 7.1400 | -0.827 | 98.93 | 10471.47 | False | NASDQ | True | True | Healthcare, Medical Equipment, and Drugs | Pharmaceutical Products | Healthcare, Medical Equipment, and Drugs | 146171.0 | 37333331.0 | Threshold Pharmaceuticals Inc | 0.003732 | 522666.0 | Banc of America Securities LLC\nCIBC World Markets Inc | 2045.88 | -44.408 | 17.0 | 0 | 4 | 15.0 | 7.00 | 0.447205 | False | 146171.0 | 0 | 8.001000 | 8.00100 | 8.001 | 32.004 | risk factors any investment in our stock involves a high degree of risk. you should consider carefully the risks and uncertainties described below and all information contained in this prospectus, before you decide whether to purchase our common stock. the trading price of our common stock could decline due to any of these risks or uncertainties, and you may lose part or all of your investment. risks related to our business risks related to drug discovery, development and commercialization we are substantially dependent upon the success of our glufosfamide and th-070 product candidates. pivotal clinical trials for our products may not demonstrate efficacy or lead to regulatory approval. our product candidates must undergo rigorous clinical testing, the results of which are uncertain and could substantially delay or prevent us from bringing them to market. before we can obtain regulatory approval for a product candidate, we must undertake extensive clinical testing in humans to demonstrate safety and efficacy to the satisfaction of the fda or other regulatory agencies. clinical trials of new drug candidates sufficient to obtain regulatory marketing approval are expensive and take years to complete. 8 we cannot assure you that we will successfully complete clinical testing within the time frame we have planned, or at all. we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent us from receiving regulatory approval or commercializing our product candidates, including the following: our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or preclinical testing or to abandon programs; the results obtained in earlier stage testing may not be indicative of results in future trials; trial results may not meet the level of statistical significance required by the fda or other regulatory agencies; enrollment in our clinical trials for our product candidates may be slower than we anticipate, resulting in significant delays; we, or regulators, may suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks; and the effects of our product candidates on patients may not be the desired effects or may include undesirable side effects or other characteristics that may delay or preclude regulatory approval or limit their commercial use, if approved. completion of clinical trials depends, among other things, on our ability to enroll a sufficient number of patients, which is a function of many factors, including: the therapeutic endpoints chosen for evaluation; the eligibility criteria defined in the protocol; the size of the patient population required for analysis of the trials therapeutic endpoints; our ability to recruit clinical trial investigators with the appropriate competencies and experience; our ability to obtain and maintain patient consents; and competition for patients by clinical trial programs for other treatments. we may experience difficulties in enrolling patients in our clinical trials, which could increase the costs or affect the timing or outcome of these trials. this is particularly true with respect to diseases with relatively small patient populations, such as pancreatic cancer, which is an indication for our glufosfamide product candidate.we are subject to significant regulatory approval requirements, which could delay, prevent or limit our ability to market our product candidates. the fast track designation for development of glufosfamide for the treatment of refractory pancreatic cancer may not lead to a faster development or regulatory review or approval process. if a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for fda fast track designation for a particular indication. marketing applications filed by sponsors of products in fast track development may qualify for expedited fda review under the policies and procedures offered by the fda, but the fast track designation does not assure any such qualification. although we have obtained a fast track designation from the fda for glufosfamide for the treatment of refractory pancreatic cancer, we may not experience a faster development process, review or approval compared to drugs considered for approval under conventional fda procedures. in addition, the fda may withdraw our fast track designation at any time. if we lose our fast track designation, the approval process may be delayed. in addition, our fast track designation does not guarantee that we will qualify for or be able to take advantage of the expedited review procedures and does not increase the likelihood that glufosfamide will receive regulatory approval for the treatment of refractory pancreatic cancer.our product candidates are based on metabolic targeting, which is an unproven approach to therapeutic intervention. all of our product candidates are based on metabolic targeting, a therapeutic approach that targets fundamental differences in energy metabolism between normal and certain diseased cells. we have not, nor to our knowledge has any other company, received regulatory approval for a drug based on this approach. there can be no assurance that our approach will lead to the development of approvable or marketable drugs. in addition, the fda or other regulatory agencies may lack experience in evaluating the safety and efficacy of drugs based on metabolic targeting, which could lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our product candidates.our product candidates may have undesirable side effects that prevent their regulatory approval or limit their use if approved. glufosfamide is known to cause reversible toxicity to the bone marrow and kidneys, as well as nausea and vomiting. th-070, which we are developing to treat patients with bph, has been investigated as a male contraceptive and is known to cause reversible effects on fertility in animals. in human clinical trials at doses significantly higher than the dose of th-070 we contemplate investigating for bph, muscle and testicular pain have been observed. these side effects or others that could be identified in the course of our clinical trials or that may otherwise be associated with our product candidates may outweigh the benefits of our product candidates and prevent regulatory approval or limit their market acceptance if they are approved.delays in clinical testing could result in increased costs to us and delay our ability to obtain regulatory approval and commercialize our product candidates. significant delays in clinical testing could materially impact our product development costs and delay regulatory approval of our product candidates. we do not know whether planned clinical trials will begin on 10 time, will need to be redesigned or will be completed on schedule, if at all. clinical trials can be delayed for a variety of reasons, including delays in: obtaining regulatory approval to commence a trial; obtaining clinical materials; reaching agreement on acceptable clinical study agreement terms with prospective sites; obtaining institutional review board approval to conduct a study at a prospective site; and recruiting patients to participate in a study.orphan drug exclusivity affords us limited protection, and if another party obtains orphan drug exclusivity for the drugs and indications we are targeting, we may be precluded from commercializing our product candidates in those indications. we intend to seek orphan drug designation for the cancer indications that our glufosfamide and 2dg product candidates are intended to treat. under the orphan drug act, the fda may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is defined by the fda as a disease or condition that affects fewer than 200,000 individuals in the united states. the company that obtains the first fda approval for a designated orphan drug indication receives marketing exclusivity for use of that drug for that indication for a period of seven years. orphan drug exclusive marketing rights may be lost if the fda later determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the drug. orphan drug designation does not shorten the development or regulatory review time of a drug, but does provide limited advantages in the regulatory review and approval process. because the prevalence of bph is greater than 200,000 individuals in the united states, th-070 for the treatment of symptomatic bph is not eligible for orphan drug designation and we cannot rely on this protection to provide marketing exclusivity. orphan drug exclusivity may not prevent other market entrants. a different drug, or, under limited circumstances, the same drug may be approved by the fda for the same orphan indication. the limited circumstances are an inability to supply the drug in sufficient quantities or where a new formulation of the drug has shown superior safety or efficacy. as a result, if our product is approved and receives orphan drug status, the fda can still approve other drugs for use in treating the same indication covered by our product, which could create a more competitive market for us. moreover, due to the uncertainties associated with developing pharmaceutical products, we may not be the first to obtain marketing approval for any orphan drug indication. even if we obtain orphan drug designation, if a competitor obtains regulatory approval for glufosfamide or 2dg for the same indication we are targeting before us, we would be blocked from obtaining approval for that indication for seven years, unless our product is a new formulation of the drug that has shown superior safety or efficacy, or the competitor is unable to supply sufficient quantities.even if we obtain regulatory approval, our marketed drugs will be subject to ongoing regulatory review. if we fail to comply with continuing united states and foreign regulations, we could lose our approvals to market drugs and our business would be seriously harmed. following initial regulatory approval of any drugs we may develop, we will be subject to continuing regulatory review, including review of adverse drug experiences and clinical results that are reported after our drug products become commercially available. this would include results from any post-marketing tests or vigilance required as a condition of approval. the manufacturer and manufacturing facilities we use to make any of our drug candidates will also be subject to periodic review and inspection by the fda. if a previously unknown problem or problems with a product or a manufacturing and laboratory facility used by us is discovered, the fda or foreign regulatory agency may impose restrictions on that product or on the manufacturing facility, including requiring us to withdraw the product from the market. any changes to an 11 approved product, including the way it is manufactured or promoted, often require fda approval before the product, as modified, can be marketed. we and our contract manufacturers will be subject to ongoing fda requirements for submission of safety and other post-market information. if we and our contract manufacturers fail to comply with applicable regulatory requirements, a regulatory agency may: issue warning letters; impose civil or criminal penalties; suspend or withdraw our regulatory approval; suspend any of our ongoing clinical trials; refuse to approve pending applications or supplements to approved applications filed by us; impose restrictions on our operations; close the facilities of our contract manufacturers; or seize or detain products or require a product recall. risks related to our financial performance and operationswe have incurred losses since our inception and anticipate that we will incur significant continued losses for the next several years, and our future profitability is uncertain. we may need substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce or eliminate our drug discovery, product development and commercialization activities. developing drugs, conducting clinical trials, and commercializing products is expensive. our future funding requirements will depend on many factors, including: the progress and cost of our clinical trials and other research and development activities; the costs and timing of obtaining regulatory approval; 12 the costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property rights; the cost and timing of securing manufacturing capabilities for our clinical product candidates and commercial products, if any; the costs of establishing sales, marketing and distribution capabilities; and the terms and timing of any collaborative, licensing and other arrangements that we may establish. we believe that the net proceeds from this offering, together with our cash on hand, will be sufficient to fund our projected operating requirements for at least the next two years, including clinical trials of glufosfamide, th-070 and 2dg, the initial development of a sales and marketing effort, general corporate purposes and for the research and development of additional product candidates. however, we may need to raise additional capital or incur indebtedness to continue to fund our operations in the future. our ability to raise additional funds will depend on financial, economic and market conditions and other factors, many of which are beyond our control. there can be no assurance that sufficient funds will be available to us when required or on satisfactory terms. if necessary funds are not available, we may have to delay, reduce the scope or eliminate some of our development programs, which could delay the time to market for any of our product candidates. we may also need to seek funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.raising additional funds may cause dilution to existing stockholders or require us to relinquish valuable rights. we may raise additional funds through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. we cannot be certain that additional funding will be available on acceptable terms, or at all. to the extent that we raise additional funds by issuing equity securities, our stockholders may experience further dilution. debt financing, if available, may subject us to restrictive covenants that could limit our flexibility in conducting future business activities. to the extent that we raise additional funds through collaboration and licensing arrangements, it will be necessary to relinquish some rights to our clinical product candidates.if we are unable to establish sales and marketing capabilities, we may be unable to successfully commercialize our cancer and bph product candidates. if our cancer product candidates are approved for commercial sale, we plan to establish our own sales force to market them in the united states and potentially europe. we may also consider establishing a sales force to market th-070 for the treatment of symptomatic bph. we currently have no experience in selling, marketing or distributing pharmaceutical products and do not have a sales force to do so. before we can commercialize any products, we must develop our sales, marketing and distribution capabilities, which is an expensive and time consuming process, and our failure to do this successfully could delay any product launch. our efforts to develop internal sales and marketing capabilities could face a number of risks, including: we may not be able to attract a sufficient number of qualified sales and marketing personnel; the cost of establishing a marketing or sales force may not be justifiable in light of the potential revenues for any particular product; and our internal sales and marketing efforts may not be effective.our success depends in part on recruiting and retaining key personnel and, if we fail to do so, it may be more difficult for us to execute our business strategy. we are currently a small organization and will need to hire additional personnel to execute our business strategy successfully. our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading 13 academic institutions, clinicians and scientists. we are highly dependent upon our senior management and scientific staff, particularly our chief executive officer, dr. harold e. selick, and our founder and president, dr.george f. tidmarsh. we do not have employment contracts with either dr. selick or dr. tidmarsh. we are named as the beneficiary on term life insurance policies covering dr. selick and dr. tidmarsh in the amount of $2 million each. the loss of the services of dr. selick, dr. tidmarsh or one or more of our other key employees could delay or prevent the successful completion of our clinical trials or the commercialization of our product candidates. as of november 30, 2004, we had 42 employees. over the next three to six months, we expect to add a significant number of new employees at an annual cost between $2 and $4 million. our success will depend on our ability to hire additional qualified personnel. competition for qualified personnel in the biotechnology field is intense. we face competition for personnel from other biotechnology and pharmaceutical companies, universities, public and private research institutions and other organizations. we may not be able to attract and retain qualified personnel on acceptable terms given the competition for such personnel. if we are unsuccessful in our recruitment efforts, we may be unable to execute our strategy.as we expand our operations, we may experience difficulties in managing our growth. future growth will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. in addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. as our operations expand, we expect that we will need to manage additional relationships with collaborators and various third parties, including contract research organizations, manufacturers and others. our ability to manage our operations and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. if we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy.because we have operated as a private company, we have no experience complying with public company obligations, including recently enacted changes in securities laws and regulations. compliance with these requirements will increase our costs and require additional management resources, and we still may fail to comply. we are a small company with limited resources. we have operated as a private company, not subject to many of the requirements applicable to public companies. while we plan to expand our staff if we become public, we may encounter substantial difficulty attracting qualified staff with requisite experience due to the high level of competition for experienced financial professionals. as directed by section 404 of the sarbanes-oxley act of 2002, the sec adopted rules requiring public companies to include a report of management on the companys internal controls over financial reporting in their annual reports on form 10-k. in addition, the independent registered public accounting firm auditing the companys financial statements must attest to and report on managements assessment of the effectiveness of the companys internal controls over financial reporting. this requirement will first apply to our annual report on form 10-k for our fiscal year ending december 31, 2005. substantial uncertainty exists regarding our ability to comply with these requirements by applicable deadlines. if we are unable to complete the required assessment as to the adequacy of our internal control reporting or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as of december31, 2005 and future year ends, investors could lose confidence in the reliability of our financial reporting.our facilities in california are located near an earthquake fault, and an earthquake or other natural disaster or resource shortage could disrupt our operations. important documents and records, such as hard copies of our laboratory books and records for our product candidates, are located in our corporate headquarters at a single location in redwood city, california, near active 14 earthquake zones. in the event of a natural disaster, such as an earthquake, drought or flood, or localized extended outages of critical utilities or transportation systems, we do not have a formal business continuity or disaster recovery plan, and could therefore experience a significant business interruption. in addition, california from time to time has experienced shortages of water, electric power and natural gas. future shortages and conservation measures could disrupt our operations and could result in additional expense. although we maintain business interruption insurance coverage, the policy specifically excludes coverage for earthquake and flood. risks related to our dependence on third partieswe rely on third parties to manufacture glufosfamide, th-070 and 2dg. if these parties do not manufacture the active pharmaceutical ingredients or finished products of satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, clinical development and commercialization of our product candidates could be delayed. we do not currently own or operate manufacturing facilities; consequently, we rely and expect to continue to rely on third parties for the production of clinical and commercial quantities of our product candidates. we have not yet entered into any long term manufacturing or supply agreement for any of our product candidates. our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our ability to develop and commercialize any product candidates on a timely and competitive basis. our current supplies of glufosfamide have been prepared by a subsidiary of baxter international, inc. and we are depending on those materials in order to conduct and complete our planned clinical trials. should those materials not remain stable, we may experience a significant delay in the completion of our pivotal phase 3 trial. although we are in the process of qualifying back-up vendors to manufacture glufosfamide active pharmaceutical ingredient, or api, and drug product, we have not yet done so, and we may not be able to do so at an acceptable cost or terms, if at all. we believe that we have sufficient supplies of th-070 api to conduct and complete our currently planned bph clinical trials. we have ordered additional th-070 api from jiangsu hengrui medicine company, ltd. we have recently entered into an agreement with pharmaceutics international, incorporated for the manufacture of th-070 drug product. we have not yet received any api or drug product from these manufacturers. the failure of pharmaceutics international to meet quality requirements or otherwise perform its obligations could significantly delay our th-070 clinical program. in addition, failure of jiangsu hengrui medicine company to provide acceptable api could delay commercialization of th-070, if approved. we believe that we have a sufficient supply of 2dg for our anticipated clinical trials over the next two years, although there can be no assurance that these supplies will remain stable and usable during this period. if these materials are not stable, we may experience a significant delay in our 2dg clinical program. we will need to enter into additional agreements for additional supplies of each of our product candidates to complete clinical development and/or commercialize them. there can be no assurance that we can do so on favorable terms, if at all. for regulatory purposes, we will have to demonstrate comparability of the same drug substance from different manufacturers. our inability to do so could delay our clinical programs. to date, our product candidates have been manufactured in quantities sufficient for preclinical studies or initial clinical trials. if any of our product candidates is approved by the fda or other regulatory agencies for commercial sale, we will need to have it manufactured in commercial quantities. we may not be able to successfully increase the manufacturing capacity for any of our product candidates in a timely or economic manner or at all. significant scale-up of manufacturing may require additional validation studies, which the fda and other regulatory agencies must review and approve. if we are unable to successfully increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of that product candidate may be delayed, or there may be a shortage of supply which could limit our sales. 15 in addition, if the facility or the equipment in the facility that produces our product candidates is significantly damaged or destroyed, or if the facility is located in another country and trade or commerce with such country is interrupted, we may be unable to replace the manufacturing capacity quickly or inexpensively. the inability to obtain manufacturing agreements, the damage or destruction of a facility on which we rely for manufacturing or any other delays in obtaining supply would delay or prevent us from completing our clinical trials and commercializing our current product candidates.we have no control over our manufacturers and suppliers compliance with manufacturing regulations, and their failure to comply could result in an interruption in the supply of our product candidates. the facilities used by our contract manufacturers must undergo an inspection by the fda for compliance with current good manufacturing practice, or cgmp regulations, before the respective product candidates can be approved. in the event these facilities do not receive a satisfactory cgmp inspection for the manufacture of our product candidates, we may need to fund additional modifications to our manufacturing process, conduct additional validation studies, or find alternative manufacturing facilities, any of which would result in significant cost to us as well as a delay of up to several years in obtaining approval for such product candidate. in addition, our contract manufacturers, and any alternative contract manufacturer we may utilize, will be subject to ongoing periodic inspection by the fda and corresponding state and foreign agencies for compliance with cgmp regulations and similar foreign standards. we do not have control over our contract manufacturers compliance with these regulations and standards. any failure by our third-party manufacturers or suppliers to comply with applicable regulations could result in sanctions being imposed on them (including fines, injunctions and civil penalties), failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecution.we rely on third parties to conduct our clinical trials, and their failure to perform their obligations in a timely or competent manner may delay development and commercialization of our product candidates. we rely almost exclusively on third-party clinical investigators to conduct our clinical trials and other third-party organizations to oversee the operations of such clinical trials and to perform data collection and analysis. we are currently using several third-party clinical investigators. we are also using clinical research organizations to oversee our ongoing glufosfamide and th-070 clinical trials and expect to use the same or similar organizations for our anticipated clinical trials. there are numerous alternative sources to provide these services. however, we may face delays outside of our control if these parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers. this risk is heightened for our clinical trials conducted outside of the united states, where it may be more difficult to ensure that studies are conducted in compliance with fda requirements. we will rely significantly upon the accrual of patients at clinical sites outside the united states. any third-party that we hire to conduct clinical trials may also provide services to our competitors, which could compromise the performance of their obligations to us. if we experience significant delays in the progress of our clinical trials and in our plans to file ndas, the commercial prospects for product candidates could be harmed and our ability to generate product revenue would be delayed or prevented.we may rely on strategic collaborators to market and sell th-070 for the treatment of bph worldwide and our potential cancer products outside the united states. we have no sales and marketing experience. we may contract with strategic collaborators to sell and market th-070 for the treatment of symptomatic bph worldwide and our cancer products outside the united states. we may not be successful in entering into collaborative arrangements with third parties for the sale and marketing of any products. any failure to enter into collaborative arrangements on favorable terms could delay or hinder our ability to develop and commercialize our product candidates and could increase our costs of development and commercialization. dependence on collaborative arrangements will subject us to a number of risks, including: we may not be able to control the amount or timing of resources that our collaborators may devote to the product candidates; 16 we may be required to relinquish important rights, including intellectual property, marketing and distribution rights; we may have lower revenues than if we were to market and distribute such products ourselves; should a collaborator fail to commercialize one of our product candidates successfully, we may not receive future milestone payments or royalties; a collaborator could separately move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; our collaborators may experience financial difficulties; business combinations or significant changes in a collaborators business strategy may also adversely affect a collaborators willingness or ability to complete its obligations under any arrangement; and our collaborators may operate in countries where their operations could be adversely affected by changes in the local regulatory environment or by political unrest. risks related to our intellectual propertyth-070 and 2dg are known compounds that are not protected by patents as compounds per se. th-070 and 2dg are known compounds that are no longer eligible for patent protection as compounds per se. a compound per se patent excludes others from making, using or selling the patented compound, regardless of how or for what purpose the compound is formulated or intended to be used. consequently, these compounds and certain of their uses are in the public domain. acraf, s.p.a. has rights to market th-070 in certain european countries for the treatment of certain cancer indications, and we cannot prevent its sale for these indications or for indications where we have not received patent protection. even if we obtain patents for th-070 to treat bph, there may be off-label use of competitive products for our patented indications. we have in-licensed one issued patent that covers the treatment of breast cancer with 2dg in combination with paclitaxel or docetaxel and related applications that cover | -0.434942 | 18.23 | 1175.41 | 102.101 | 37333331 | 0.690 | 1741 | True | 2005 |